Jadestone Energy has executed an acquisition agreement with Mandala Energy Lemang to acquire an operated 90% interest in the Lemang production sharing contract ('PSC'), onshore Indonesia, for a total initial headline cash consideration of US$12 million, to be funded from the Company’s cash resources, and certain subsequent contingent payments.
Overview of the Lemang PSC
The Lemang PSC is located onshore Sumatra, Indonesia. The block includes the Akatara gas field, which was previously developed as an oil producing asset, but has a best estimate gross undeveloped wet gas in place of approximately 115 bscf which, at 90% interest, equates to unrisked 2C resources of 55.2 bscf sales gas, 2.2 mm bbls of condensate, and 5.8 mm boe of liquid petroleum gas.
The asset has been substantially de-risked with 11 wells drilled into the structure, plus three years of oil production history, up until the field ceased production in December 2019, after reaching its economic limit for oil production.
The remaining 10% working interest in the PSC is held by PT Hexindo Gemilang Jaya and, as is customary in Indonesia, the local government has a back-in right under the PSC, for up to a 10% working interest, at the time of development sanction. If exercised, this would result in an 81% interest, net to Jadestone.
Overview of the Acquisition
The Acquisition has a total initial headline cash consideration of US$12 million, based on an economic effective date coincident with completion. The transaction is structured as a purchase of the interest in the Lemang PSC by a wholly owned subsidiary of the Company, with a guarantee from the Company in respect of the initial consideration.
Further consideration of US$5 million is payable to the seller upon first gas, in addition to further contingent payments of up to US$26.7 million, which may be triggered in the event that certain upside outcomes occur.
The Company believes the Acquisition represents exceptional value to Jadestone shareholders. Highlights include:
- US$0.70/boe of 2C resource acquisition cost;
- NPV10 of US$57 – US$80 million, implying a purchase multiple of 0.15x – 0.21x 2C NAV;
- Results in NAV per share accretion of 4.3-6.3%, based on the Company’s 2P plus 2C net asset value;
- Expected development capex of US$5.44/boe;
- Low cost development due to re-use of existing wells and infrastructure and short tie-in to nearby gas export pipelines within 17km;
- Funding for the development to come from existing cash, future cash flows, and debt;
- US$126 million in tax deductible gross cost pools, arising from prior spend, to be recovered through the PSC cost-recovery mechanism;
- Anticipated incremental production of approximately 5.3 mboe/d, based on management’s estimated average plateau gas production rate of 18.8 mmscf/d gas (gross), plus associated condensate and LPG, with a duration of six years;
- No near-term spending commitments, providing flexibility in the timing of the development and associated capital, to coincide with balance sheet capacity;
- Increase in the Company’s 2P reserves plus 2C resources of 20%; and
- Abandonment funds are set aside bi-annually on a unit-of-production basis over the life of the field and are fully cost recoverable.
In addition, the Acquisition introduces diversification and balance to the Company’s portfolio through:
- Adding a further PSC asset to its portfolio. The Company’s producing assets are all in royalty and tax-based regimes. Following the Acquisition, Group 2P reserves + 2C resources held via PSC increase from 36% to 47%;
- Future fixed price gas production, creating a natural hedge to volatile oil prices and increasing the Company’s proportion of long-term fixed price production from 34% to 37%;
- Additional near-term production;
- Reducing the Company’s blended unit operating costs once the asset is in production by more than 20%; and
- An opportunity to re-establish credentials as an operator in Indonesia, increasing the Company’s ability to access further opportunities in the country.
The Acquisition will be funded from available cash on hand, and funding of the development will be the subject of a future announcement, expected to comprise a mix of cash on hand, future cash flows and debt from an enlarged reserves based loan facility.
The Acquisition does not compromise the Company’s ability to fund the remainder of its planned capital spending in 2020, its maiden dividend, or closing of the Maari acquisition which remains on track for H2 2020.
Completion of the Acquisition is conditional upon customary governmental consents to the assignment of the interest in the Lemang PSC to a wholly owned affiliate of the Company, the appointment of such affiliate as the operator under the Lemang joint operating agreement (“JOA”), as well as other consents under the JOA, as required, all on or before June 26, 2021.
The Company anticipates completing the Acquisition in Q1 2021. In the interim period, the seller has given customary undertakings and subject to any consents, members of the Company’s team will be seconded to the project.
Indonesia is one of the most prolific oil and gas jurisdictions in the Asia Pacific region, and includes many assets which are either mid-life or potential near-term development candidates, thereby offering an excellent fit with Jadestone’s capabilities.
The Company and its management have extensive prior experience both in operating producing upstream oil & gas assets in Indonesia and with the Indonesian regulators, including via Jadestone’s prior participation in the Ogan Komering PSC. Jadestone has an in-place team in Jakarta, well versed in the commercial and operating characteristics of the Sumatra Basin, which is a core area for the Company.
Paul Blakeley, President and CEO commented:
'I’m delighted to re-establish our operating presence in Indonesia and to further balance our portfolio by adding a new gas resource to our reserves base. In addition to providing much-needed energy to a region of Indonesia which will benefit from it, this acquisition creates an opportunity to renew key relationships in Sumatra with local stakeholders, service providers and communities with whom we have worked closely in the past through the team’s involvement in Ogan Komering, and various other assets in prior times.
“The Acquisition adds 17.2 mm boe of 2C gas resource, prior to any local government back-in, implying a headline consideration of US$0.70/boe, and which we believe can be developed for US$5.44/boe, thanks in part to re-use of existing facilities. While gas prices and other terms are currently being negotiated we expect to execute a gas sales agreement, ahead of development plan approval and any commitment to project capital. Local gas prices are typically in the range of US$5 – $6/mm btu, which we anticipate will generate attractive returns on investment, making this a compelling opportunity to add value to the Jadestone portfolio.
Reflecting on the current economic climate, and our deliberate measures to conserve capital resources in 2020, Lemang provides a high degree of flexibility in the forward spending profile. The PSC carries no near-term spending commitments, doesn’t expire until 2037, and as such, affords us the discretion to time the development such that spending dovetails with other high-value investments across our portfolio.'
The Company has posted a new presentation to its website, at www.jadestone-energy.com/investor-relations/presentations-communication/.
Source: Jadestone Energy