ADV.L Regulatory News (ADV)

Andalas Energy and Power Plc - Agreement to acquire Indonesian project

PR Newswire

London, August 29

29 August 2018

Andalas Energy and Power Plc

(‘Andalas’ or the ‘Company’)

Conditional Acquisition of Indonesian oil project

Andalas Energy and Power Plc, the AIM listed oil and gas company (AIM: ADL), is pleased to announce it has entered into a conditional agreement to acquire an interest in the Bunga Mas Production Sharing Contract (the “Bunga Mas PSC” or the “PSC”), located in South Sumatra, Indonesia.

Highlights:

Acquisition of initial 25% participating interest in Bunga Mas PSC via a corporate acquisition with right to increase interest to 49% and then 100%.

Consideration of 19,200,000 Andalas ordinary shares to be issued as follows:

9,600,000 shares on completion of the acquisition of the initial participating interest (“Completion”).

9,600,000 shares on regulatory approval of increase of interest to 49%.

The consideration shares, representing 6.5% of Andalas’ current issued share capital, to be issued at the prior 5-day volume weighted average at the date of issue.

Completion is subject to various matters including extension of the exploration period of the PSC.

Andalas to undertake new exploration and development of the PSC as an exclusive operation entitling it to 100% of the cash flows available to participating interest owners under the PSC.

The Bunga Mas PSC is located onshore, near existing upstream facilities, in the prolific producing South Sumatra basin, Indonesia:

Within the PSC, the Bunga Mawar field has been assessed by the operator to contain 2C contingent resources of 0.22 million barrels of oil (“MMBO”) and best prospective resources of 2.09 MMBO (gross) in the Air Benakat formation.

Initial work programme plans to test the Bunga Mawar field and to convert prospective resources to additional contingent resources which will form the basis for a plan of development.

Further details of work programme to be announced on completion.

The acquisition includes a pro-rata share of unaudited brought forward past costs that are recoverable by participating interest owners from future revenues in priority to various other distributions (“Cost Pool”).

Previous expenditures on the PSC total US$111,695,000 (gross) of which a proportion is expected to be Cost Pool attributable to the Bunga Mawar project and will, assuming recovery is permitted by the regulator significantly enhance the projects economics.

A further detailed description of the transaction and the asset, including a royalty created by the vendor, is set out below.

The operator has assessed the PSC to include the resources set out in Table 1 below:

Table 1 Gross resources (Notes 1, 2, 3, 4, 5 and 6):

Bunga Mawar Field:

Other Structures on Licence:

Simon Gorringe, CEO of Andalas Energy and Power PLC said “We are very pleased to have reached agreement with the vendor for the acquisition of interests in the Bunga Mas PSC. It is an all share deal structured to align the interests of the vendor and our shareholders and ensure that consideration does not pass and additional costs are not incurred until the deal completes.

“The PSC contains the Bunga Mawar field, which was discovered in 2012 by the drilling of the Bunga Mawar-1 well into the Air Benakat formation, which produced sweet light crude of 45o API from a depth of 704 m. Our initial work programme will target the Bunga Mawar Field, following which we expect to submit, for approval, our Plan of Development to bring the field into production and will then look to appraise and develop the other oil and gas accumulations on the licence.”

Note 1: Contingent Resources are defined as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources are a class of discovered recoverable resources.

Note 2: Based on well test data and analysis supplied by the Operator and reviewed by Andalas, the Bunga Melati 1 well tested natural gas from the Talang Akar Formation (TAF) at rates up to 11.8 mmscfd. However, the gas analysis determined the CO2 content to be 67%. Bunga Melati is a discovered accumulation. Future commercial development will be dependent on further appraisal and the ability to address the CO2 content. The low chance of success (“COS”) reflects the likelihood of a future commercial development.

Note 3: Prospective Resources are defined as those quantities of petroleum that are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations. The GCOS in respect of the Bungar Mawar prospective oil resource was assessed by Andalas using information provided by the Operator.

Note 4: The work programme in contemplation has the potential to move these Bunga Mawar Prospective Resource volumes to the Contingent Resource category, and ultimately, with the preparation and approval of a Plan of Development for the field to the Reserves classification.

Note 5: The tables present the gross contingent and prospective resources within the Bunga Mas PSC. Following completion Andalas has the right to seek to extract 100% of the oil and gas potential. However, whilst the volumes above are the estimated potentially recoverable volumes, the economic entitlement to Andalas will be dictated by the terms of the PSC and Andalas’ percentage working interest held in each operation.

Note 6: The work carried out in calculating the Contingent and Prospective Resources above was done using international resources and reserves reporting and classification standard adopted by the AIM market of the London Stock Exchange plc - the March 2007 SPE/WPC/AAPG/SPEE Petroleum Resources Management System ("PRMS").

About the Bunga Mas PSC

The Bunga Mas PSC was initially entered into on 7 October 2005 in respect of an initial contract area in South Sumatra comprising 2,233 km2 and which now comprises an area of 447 km2 after relinquishments in accordance with the PSC. The term of the PSC is 30 years and includes an initial term for exploration after which the contractor may progress to further periods for development and then exploitation. The exploration term is the subject of an application for extension and the granting of that extension is a condition precedent to completion of the sale and purchase agreement.

The PSC provides that the contractor (i.e. the participating interest owners) is entitled to 35.7% of the oil and 71.4% of the natural gas available for distribution after recovery by the contractor of its permitted costs (including the brought forward cost pool). The PSC also contains customary provisions regarding first tranche petroleum and domestic market obligation.

Prior contractors have incurred expenditures of US$111,695,000 in exploring the PSC. Andalas expects a proportion of this expenditure will be recoverable by Andalas in priority to distributions of profits to the state. The bulk of the original exploration was focussed on the discovery of gas.

Description of the transaction

Andalas has entered into a sale and purchase agreement pursuant to which it has agreed to acquire 100% of Aura Violet International Ltd (“AVI”) from Tilegarre Corporation. 

AVI is the parent company of PT Bunga Mas Energi (“BME”). BME has a 25% participating interest in the PSC. The other participating interests in the PSC are held by Bunga Mas International Company (“BMIC”) as to 51% and Dorato Fiore Pacifico Ltd (“DFP”) as to 24%. BMIC is the operator of the PSC. Each of AVI, BMIC and DFP are subsidiaries of Arctic Bay Ventures Inc (“ABV”).

In consideration, Andalas has agreed to issue 19,200,000 fully paid ordinary shares in two equal tranches. The first tranche shall be allotted on Completion and the second tranche shall be allotted on receipt of the approval of SKK Migas and the Government of the Indonesia to the transfer by DFP of its participating interest to BME.

The sale and purchase agreement is conditional on:

DFP agreeing to assign its 24% participation interest in the PSC to BME for $1 and submission to SKK Migas of an application to approve the transfer;

The Indonesian Minister of Energy and Mineral Resources approving an extension to the exploration period of the PSC on terms acceptable to Andalas and various other related matters;

Various parties including the ABV group entering into a further agreement (“Framework Agreement”) to regulate the activities of BMIC, DFP and BME under the joint operating agreement (“JOA”) and various other matters; and

Various procedural matters necessary to perfect the transaction.

The agreement has a longstop date of 31 December 2018.

The Framework Agreement, which the parties must execute at Completion, provides that further exploration and development on the PSC will be undertaken as an exclusive operation by BME in accordance with the JOA. Accordingly, all future PSC revenues available to participating interests and all expenses shall be for the account of BME.

Initially, BMIC shall continue to be the operator. However, Andalas has the right to require BMIC to withdraw from the PSC and transfer its participating interest to BME for $1. At this stage, BME would seek to be the new operator.

If BME has not commenced its exclusive operations within 7 months after Completion, Artic may sell BMIC to a third party and permit it to undertake exclusive operations.

Prior to Andalas executing the sale and purchase agreement, each of BMIC, DFP and BME granted a royalty in favour of Arctic (“Royalty”) pursuant to which they agreed to pay:

20% of the proceeds, net of tax, from the sale of that portion of production allocated to the participating interest owners for the recovery of costs (“Cost Hydrocarbons”) incurred in relation to the development of the Mawar formation until such time as the aggregate proceeds distributed to participating interest owners is $19.7m or such other sum as SKK Migas permits for the recovery of the costs incurred to date in relation to that project; and

5% of the proceeds, net of tax, from the sale of all hydrocarbons allocated to the participating interest owners other than Cost Hydrocarbons (“Profit Hydrocarbons”).

Andalas has granted Arctic an option to purchase a 20% participating interest in the PSC. The consideration payable on exercise of the option is the termination of the Royalty and a cash sum equal to all amounts paid to Arctic pursuant to the Royalty. The option may only be exercised after completion of the sale and purchase agreement and DFP transferring its participating interest to BME provided that notice is given before 30 June 2020.

In addition, Arctic has granted Andalas an option to purchase each of BMIC and DFP for $1 each and an option to put AVI back to Arctic for $1.

The unaudited management accounts of the acquired group of companies for the period from 1 January 2018 to 30 June 2018 showed a pre-tax loss of $30,811 and net liabilities as at 30 June 2018 were $13,888. The effective date of the agreement, once all conditions have been achieved, is 1 May 2018.

Reserves and Resources Cautionary Statement

Oil and gas reserves and resource estimates are expressions of judgment based on knowledge, experience and industry practice. Estimates that were valid when originally calculated may alter significantly when new information or techniques become available. Additionally, by their very nature, reserve and resource estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional drilling and analysis, the estimates are likely to change. This may result in alterations to development and production plans which may, in turn, adversely impact the Company’s operations. Reserves estimates and estimates of future net revenues are, by nature, forward looking statements and subject to the same risks as other forward looking statements.

Qualified Person's Statement

The technical information contained in this announcement has been reviewed and approved by Mr. Gregor Mawhinney. Mr. Mawhinney is consulting for Andalas, acting in the role of Vice President Operations. He has nearly 40 years’ experience in the oil and gas industry, is a member of the Society of Petroleum Engineers (SPE) and a member of the Professional Engineers and Geoscientists of Newfoundland and Labrador (PEGNL).

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ('MAR). Upon the publication of this announcement via a Regulatory Information Service ('RIS'), this inside information is now considered to be in the public domain.

For further information, please contact:

Glossary:

Unless otherwise stated, words and expressions used in this announcement have the same meaning as is given to them in the SPE Petroleum Resources Management System.