Hague and London Oil PLC is pleased to announce that it has entered into a conditional agreement to acquire a material interest in the Duyung Production Sharing Contract , located in the Natuna Sea, Indonesia:
- Duyung PSC contains the undeveloped Mako Natural Gas discovery and nearby infrastructure
- Estimated Gas Initially in Place (“GIIP”) of 902 Bcf gross (150 mmboe)
- Material transaction in line with strategy to broaden portfolio in Southeast Asia, leveraging HALO
- expertise of the market, basin, geology and technology
- Operatorship of exploration and appraisal opportunity with high working interest of 85% and relatively low risk exposure
- Low pressure, shallow gas in jack-up water depth
- Low cost entry: initial commitment limited to US$0.5 million
- Healthy economics within current commodity prices under competitive fiscal terms and within a range of recovery factors
Transaction
The proposed transaction will see HALO acquire 85% and the operatorship of Duyung from West Natuna Exploration Ltd (“WNEL”), a private Singapore-based entity, who will retain a 15% stake.
As part of the transaction, HALO has agreed to provide the partnership with US$0.5 million of working capital and to acquire long-lead items and/or contract services for the drilling of an appraisal well on the license, Mako South-1X. If the Company proceeds with the transaction then HALO would carry WNEL for its net 15% working interest share of costs, capped at US$10 million (gross) inclusive of the upfront US$0.5 million working capital payment (i.e. a capped carry of US$1.5 million net to WNEL). Any net costs incurred by WNEL beyond the US$1.5 million will be paid in accordance with the Joint Operating Agreement on a net working interest basis.
The minimum remaining work programme is expected to include the Mako South-1X appraisal well, and the partners may commit to more work as part of a wider appraisal and development programme of the Mako Natural Gas discovery contained within the Duyung PSC.
The terms of the transaction grant HALO preferential recovery of all audited and approved costs expended on the Mako Discovery from WNEL’s and HALO’s share of hydrocarbons produced, including the historic cost pool (ca. US$12 million gross). Following cost recovery from the Mako Discovery, all costs incurred and hydrocarbons produced from the license will be shared in accordance with the Joint Operating Agreement on a net working interest basis.
Duyung PSC
Situated in the major oil and gas producing and exporting Natuna Sea basin, Duyung covers an area of 1,673km2in water depths ranging from 60 metres to 100 metres. HALO believes that the PSC has significant shallow gas potential with multiple stacked reservoirs, as has been demonstrated in the Mako Discovery. According to an independent report by Panterra Geoconsultants B.V. dated 24 April 2015, GIIP is estimated to be up to 902Bcf (150 mmboe); recovery factors for such gas accumulations may be in the range of 21-52% based on example fields elsewhere.
The Mako Discovery, which is currently undeveloped, is covered by legacy high-resolution 2D seismic plus log data from three previous wells and covers an area of 430 km2. The Mako-1 exploration well was drilled in March 1999 by LASMO and targeted large scale channel seismic facies which were interpreted as incised valley fill. The well encountered 23 feet of net gas filled sand at the top of the seismic anomaly followed by 60 feet of mudstone above a further 12 feet of net water-wet sand at the base of the channel feature. Wireline logs confirmed gas-down-to and water-up-to values consistent with the pre-drill gas water contact modelling of 1,420-1,450 feet. HALO believes that the existing data is sufficient to enable it to identify the location of the potential appraisal well, Mako South-1X, to be drilled in 2016, the aim of which is to improve reservoir understanding and, more importantly, reservoir performance on a drill stem test in order to establish other properties, particularly permeability, saturation and ultimate recovery.
The PSC benefits from favourable economic terms, including full cost recovery, and is expected to be viable at current commodity prices. As Contractor, HALO would receive 71.4% of profit gas and net a ca. 40% “take” post-tax. The Mako Discovery is also commercially attractive due to the extensive nearby infrastructure, including the West Natuna Transport System which delivers gas to local Indonesian markets, as well as neighbouring Singapore, through the gas export pipeline. Recent gas sales in Indonesia have been in excess of US$6/mmbtu; the onshore Aceh Block A gas development has recently contracted for the sale of gas at US$9.45/mmbtu (at the Belawan pipeline tie-in point).
Conditions
The transaction is subject to customary regulatory approvals and closing conditions, as well as HALO making US$0.5 million available in working capital to the joint venture. HALO can fund the working capital requirements from existing cash resources.
Andrew Cochran, Chairman and Interim Chief Executive, commented:
“We formed Hague and London Oil with an ambitious plan to grow the Company and create value within even the most trying of market circumstances. Whilst the market downturn has affected the global oil and gas sector, we have endeavoured to turn this situation to our advantage. Since the combination with Wessex we have near-fully restructured the Company and focused our efforts on value-accretive transactions. Our underlying strategic corporate development principles have remained the same but we have been adaptive with respect to screening criteria and tactical implementation. HALO believes that Duyung is a good example of what discipline, rigour and patience can yield even within this market. The best analogue for this ‘low pressure/shallow gas’ is in the Netherlands and our team has had hands-on experience with its exploitation; this experience can be exported to Southeast Asia using readily available industry technology. Duyung is a relatively low risk, low cost but high reward opportunity demonstrating robust indicative economics even within the current environment. It’s a great addition to our portfolio and materially expands our presence within the new core area of Southeast Asia.”