The Indonesian Deputy Minister of Energy and Mineral Resources announced on Friday that the Bunga Mas PSC is to be one of the 6 licences to be converted to gross split PSC’s in mid-February 2019.
Andalas Energy (ADL) has a conditional agreement to acquire 25% (rising to 49% and then 100%) interest in Bunga Mas PSC.
The field, located near South Sumatra, Indonesia, has a low risk and cost production potential of 600,000 to 700,000 barrels of oil, with a large potential upside for millions of barrels of oil in the Eastern and Western areas of the license.
A gross split of the PSC will divide the asset between the contractor and government, and likely alter the economic profile of a successful development of Bunga Mawar.
Despite this, Andalas told shareholders that it still exposes them to a “significant upside” both under original PSC and a gross split PSC.
The company said that it offers operational advantages, as the gross split PSC regime was created to “make oil and gas licences efficient, uncomplicated, simple and with more secure processes” according to the Indonesian Deputy Minister.
Andalas is to advise on terms of extension when approval is granted, particularly the terms of the extension of exploration period and transitional provisions.
Simon Gorringe, CEO of Andalas Energy and Power PLC said, “This change in licence terms is in line with the Indonesian government’s intention to have all oil and gas licences structured on a Gross Split basis and although we still do not know the exact terms of the new licence the company has the ability to renegotiate its economic interest with the operator to ensure the project meets our investment criteria.”
“We have established a good relationship with the Bunga Mas Operator who wants to close the deal as soon as possible and is willing to work with ADL to ensure that a satisfactory deal can be agreed. I look forward to updating the market as we progress with what continues to be an exciting deal.”
Shares in Andalas were up 2.7% following the news.
Andalas is paying consideration for the acquisition of Bunga Mas of 19.2 million shares (£177,600 at the closing share price on 11 January 2019). The Bunga Mawar formation has 2.3 million barrels of best case contingent and prospective resources.
Mr. Gorringe added: “successfully developing Bunga Mawar is expected to provide cash flow to support the exploration and appraisal of the other leads and prospects on the licence that have total operator assessed best estimate prospective resources of 54 million barrels of oil and 26 BCF of.”
Indonesia introduced the new PSC scheme based on gross production split in 2017 to incentive exploration and exploitation activities, providing spending and operational freedom to operators.
The new regime is based on gross split without regard to cost recovery, which allows the exploration and production company to recover the cost of the discovery.
Mr. Gorringe said: “Bunga Mas PSC represents a huge opportunity for Andalas, it has near term production potential and longer term has up to five potential exploration targets each with multi-million barrel of oil potential, the exploration of which we believe could be financed in full or in part by the production from the first phase of the project development.”
In 2013, PWC described the Indonesian power sector as “potentially the most exciting power investment opportunities for at least a generation”.
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