Jadestone Energy, an independent oil and gas production company focused on the Asia-Pacific region, has executed a sale and purchase agreement with Japan Australia LNG (MIMI) to acquire the Seller’s non-operated 16.67% working interest in the Cossack, Wanaea, Lambert, and Hermes ('CWLH') oil fields development, offshore Western Australia, for a total initial cash consideration of US$9 million, and certain subsequent Abandonment Trust Payments. The Acquisition will increase the Company’s non-operated working interest in the CWLH fields from 16.67% currently to 33.33% on completion.
Paul Blakeley, President and CEO commented:
'Since acquiring our initial CWLH interest in November 2022, the subsurface performance has exceeded expectations, validating our work and de-risking the significant upside potential we see across the fields. As such, we are pleased to be increasing our interest in a very high-quality, long-life asset with low decline rates at an attractive 2P acquisition cost of US$1.7/bbl, or less than US$1/bbl on a 2P + 2C basis. This acquisition also provides us with greater influence over investment decisions on an asset which is expected to be an important part of the Jadestone investment case for years to come.
We intend to fund the acquisition and associated abandonment trust payments through available liquidity, including our reserves-based lending facility, which was structured to accommodate Jadestone’s growth by supporting the acquisition of producing reserves with significant upside potential. Our RBL banks are supportive of this acquisition and recognise the benefits that it will bring to our business, further diversifying our production base and adding barrels which are accretive on all measures. Flaring from the CWLH fields is minimised due to the export of associated gas to the neighbouring North West Shelf Gas facilities, reducing emissions intensity and further evidencing how our strategy of maximising recovery from existing upstream assets is consistent with our sustainability principles.'
Acquisition Highlights
- The Acquisition includes the Seller’s entire 16.67% working interest in the CWLH fields, subsea infrastructure, Okha FPSO, and full abandonment liabilities. Jadestone will make payments of up to US$111 million in connection with the Acquisition, comprising a consideration of US$9 million and up to US$102 million into the CWLH Abandonment Trust Fund in three instalments in 2024.
- Jadestone is acquiring 11.8 mmbbls(1) net, comprising 0.2 mmbbls of production since the effective date, 5.1 mmbbls of 2P Reserves and a further 6.5 mmbbls of 2C Resources (both as at 31 December 2022).
- Based on a consideration of US$9 million, this represents a 2P acquisition cost of ~ US$1.7/bbl and ~US$0.8/bbl on a 2P + 2C basis.
- It is anticipated that, due to an effective date of 1 July 2022, any completion adjustments will result in a payment to Jadestone in the range of US$3-6 million(2) on closing of the Acquisition, which is currently expected in Q1 2024. Any payment to Jadestone due to the completion adjustments will be paid by the Seller into the CWLH Abandonment Trust Fund, offsetting the first US$42 million instalment by the same amount (see immediately below).
- Jadestone will pay US$42 million into the Abandonment Trust Fund for the CWLH fields on completion of the Acquisition. Jadestone will also make two further payments into the Abandonment Trust Fund:
- A payment of US$23 million, payable on NOPTA (3) approval and registration of transaction documents exchanged at completion (currently projected for March 2024); and
- Up to US$37 million at 31 December 2024.(4)
- Jadestone intends that the Abandonment Trust Fund payments, which are projected to broadly coincide with receipts from liftings attributable to the Seller’s interest, are paid for through available liquidity including corporate cash balances and, pending lender consent, available liquidity in its reserves-based lending (“RBL”) facility.
- The CWLH fields produced c. 2,200 bbls/d during Q3 2023 and have averaged c.1,800 bbls/d year-to-date 2023 (both figures net to the Seller’s 16.67% interest). Production has regularly exceeded 2,300 bbls/d net to Jadestone in recent months. Year-to-date production was impacted by facilities downtime earlier in 2023, with remediation plans to prevent similar occurrences already being implemented.
- Oil production from the CWLH fields is low-sulphur and low-density. The next lifting allocated to the Seller’s interest is estimated at c.650,000 bbls and is expected to occur in Q1 2024.
- Unit operating costs for the Seller’s interest are estimated at <US$25/bbl and will be accretive to the Company’s overall current unit operating cost. There will be no incremental overhead to Jadestone for managing this interest.
- Jadestone continues to believe that there is potential to add incremental reserves through infill drilling, targeting unswept oil across all four of the CWLH fields; and extending the asset life beyond 2031 (the initial design life of the Okha FPSO).
The following tables set out the 2P Reserves and 2C Resources for the Company’s existing 16.67% interest in the CWLH fields, as independently evaluated by ERCE at an effective date of 31 December 2022. The 2C Resources represent forecasted oil production achieved by the extension of the Okha FPSO design life by 10 years to 1 October 2041, and the drilling of additional infill wells.
CWLH fields 2P reserves at 31 December 2022
CWLH fields 2C Resources at 31 December 2022
The entity acquiring the Seller’s working interest is an obligor under the RBL facility agreement, which requires the RBL lenders’ consent for the acquisition of the additional working interest. The RBL lenders have unanimously approved this acquisition and the Company intends to seek RBL lender consent to integrate the additional CWLH working interest into the RBL’s borrowing base, although this is not a condition for the transaction. Subject to RBL lender consent, the additional CWLH working interest is expected to increase the RBL borrowing base and debt availability.
Sales from the CWLH fields are marketed individually by joint venture partners. The next lifting allocated to the Seller’s interest is estimated at c.650,000 bbls and is expected to occur in Q1 2024. The CWLH fields differential to Brent has fluctuated between a premium and discount in recent years, largely driven by the regional naphtha crack margin. Jadestone currently expects a small discount to Brent for near-term liftings from the CWLH fields.
The Seller’s interest includes Petroleum Resource Rent Tax (“PRRT”) credits. Jadestone anticipates that these credits will offset any PRRT payable on the acquired interest through to the end of the asset’s life. Jadestone has, and will continue to pay, PRRT and corporate income tax on its Australian operations where applicable.
The CWLH joint venture partners have waived their pre-emption rights and given their in-principle consent to the Acquisition (subject to agreement of the relevant accession documentation), thus reducing the conditionality of the transaction.
Completion of the Acquisition is subject to the satisfaction of customary closing conditions, including regulatory approvals from NOPTA and Australia’s Foreign Investment Review Board. The Company anticipates completion of the transaction during the first quarter of 2024.
(1) Based on an independent evaluation of the CWLH fields at an effective date of 31 December 2022 by ERC Equipoise Pte Ltd and actual production figures for the period 1 July 2022 to 31 December 2022.
(2) The closing adjustment represents the economic benefits of production since the effective date and completion. These primarily reflect the proceeds of the Seller’s 2023 equity lifting from CWLH fields less operating costs since the effective date and does not assume proceeds from the next lifting expected to occur in Q1 2024.
(3) National Offshore Petroleum Titles Administrator.
(4) Actual figure to be determined by an updated decommissioning cost estimate for the CWLH fields, which is currently being prepared by the operator.
(5) The production licences cover both CWLH and the North West Shelf Gas Project. Jadestone will be acquiring an interest in the production licences to the extent of CWLH only.
Source: Jadestone Energy
