Andalas Energy and Power plc - Update on Bunga Mas

Source Press Release
Company Andalas Energy and Power plc 
Tags Corporate Deals, Deals, Upstream Activities
Date January 14, 2019

Andalas Energy and Power PLC, is pleased to report that Arcandra Tahar, Deputy Minister of Energy and Mineral Resources (“Deputy Minister”) issued a press release on Friday 11 January 2019, that the Bunga Mas PSC will be one of 6 licences that will be converted to gross split PSC’s by mid-February 2019. As announced on 29 August 2018, Andalas has a conditional agreement to acquire an initial 25% (rising to 49% and then 100%) interest in the Bunga Mas PSC.

The operator of the Bunga Mas PSC applied to convert the PSC to a gross split PSC as part of the process to extend the exploration period, one of the key conditions to completion of Andalas’s acquisition of an interest in the Bunga Mas PSC.  Andalas regards the conversion to a gross split PSC as an important and positive step in this process.

The modelling performed by the Company to date indicates that the conversion of the PSC to the gross split PSC is likely to alter the economic profile of a successful development of Bunga Mawar.  Importantly, however, it does not alter Andalas’ view that the deal exposes shareholders to significant upside under both the original PSC terms and the gross split PSC terms. 

In addition, Andalas believes that the new gross split PSC will provide operating advantages - the Deputy Minister highlighted that the gross split PSC regime was created to make oil and gas licences efficient, uncomplicated, simple and with more secure processes.

Andalas will advise on the terms of the extension at such time as approval is granted by the government.  The terms will include, amongst other things, the terms of the extension of the exploration period and the application of any transitional provisions between the old and the new regime. 

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.

“This news validates our decision to grant a short extension to the long stop date last month.  The announcement by the vice Energy Minister indicates that the PSC will be formally converted in February, during which time we will continue to work with the vendor towards finalising the acquisition. 

“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.

“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), which we believe would represent very good business should we be successful in the planned development of the Bunga Mawar formation that has 2.3 million barrels of best case contingent and prospective resources. 

“Furthermore, 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.

“We look forward to an exciting few weeks and months as we provide the market with updates across our portfolio, including completion of our acquisition of an interest in the Bunga Mas PSC and both the forthcoming Colter new drill, which is targeting 22 million barrels of oil (1.76 million net to Andalas) and the additional studies on our Badger investment.”

Gross Split PSC Regime

Indonesia introduced a new PSC scheme based on gross production split in 2017.  The Government’s intention was to incentivise exploration and exploitation activities by providing spending and operational freedom to operators.

The new regime is based on a gross production split without regard to a cost recovery mechanism.  Hydrocarbons produced from the PSC are shared between the contractor and the government.  The production split is determined by reference to the characteristics of the project.  The base split for oil is 57% to the government and 43% to the contractor and for gas is 52% to the government and 48% to the contractor.  The base split is adjusted by reference to variable and progressive components.  The variable components include the status of the working area, field location, depth of the reservoir, availability of infrastructure, type of reservoir, carbon dioxide content, hydrogen sulphide content, specific gravity of oil and domestic component during the developments stage and the production stage.  The progressive components comprise oil and gas prices and cumulative oil and gas production.  By way of example, the first plan of development under a gross split PSC will attract an additional 5% contractors split and an off-shore field in water depths greater than 1000m would attract an additional 16% contractors split.

The role of SKK Migas is limited to control and monitoring of gross split PSCs and whilst it will approve work programmes it will not approve budgets which will be provided as a supporting document.  Contractors may carry out procurement of goods and services independently and the governments procurement regulations will not apply the same restrictions as under the former regime.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd