Baron Oil agrees farm-up for Timor-Leste PSC

UK-based oil and gas company Baron Oil has signed a memorandum of understanding (MoU) with Timor Gap for the farm-up of the Chuditch production sharing contract (PSC) offshore Timor-Leste.

Baron Oil announced a proposed assignment of a 15% working interest in the TL-SO-19-16 PSC offshore Timor-Leste to Timor Gap Chuditch Unipessoal, the existing joint venture partner on the PSC and a wholly owned subsidiary of Timor Gap E.P. the Timor-Leste National Oil and Gas Company.

Baron’s wholly-owned subsidiary SundaGas Banda Unipessoal entered into the MoU with Timor Gap. The terms of the MoU constitute a binding obligation on the parties to enter into the farm-up, subject to and conditional on the satisfaction of two conditions precedent.

Under the MoU, on completion of the farm-up, SundaGas, will retain operatorship and hold a 60% working interest in the Chuditch PSC, while Timor Gap will have a 40% interest, made up of a new paying 15% interest, plus its original 25% interest which is carried to first gas. Therefore, from completion, Timor Gap will be responsible for paying 20% of all costs, including the drilling of the planned Chuditch-2 appraisal well. In 2024, this contribution is estimated to be around $7.5 million.

On completion, SundaGas will also receive cash payments from Timor Gap which are estimated to be approximately $1 million relating to back costs covering the period from the signing of the PSC to the anticipated date of completion.

The farm-up agreements will be subject to two conditions precedent, including the approval by the Board of Directors of Timor Gap E.P. and the approval by Timor-Leste’s National Petroleum Authority (Autoridade Nacional do Petróleo or ANP).

The MoU shall terminate with immediate effect on the execution of the farm-up agreements or midnight on January 31, 2024, whichever is the earlier to occur, unless extended.

Baron’s directors consider that the farm-up by Timor Gap will have a value to Baron of approximately $8.5 million in reimbursement for prior costs and in the offset of future spend. Furthermore, the directors believe that the Timor-Leste Government’s validation and commitment will both support and progress the preparations for the planned Chuditch-2 appraisal well, as well as advance financing plans for Chuditch-2, where discussions continue with other potential funding partners.

The operational plan remains to drill and flow test the Chuditch-2 appraisal well in late 2024, subject to rig and drilling services availability and the completion of drill financing. A location has been selected for the drilling and significant progress has been made in preparation for the drilling campaign.

The cost of the Chuditch-2 appraisal well is anticipated to be approximately $32 million, including the costs of a full production flow test, which is an updated amount. The previously indicated drilling cost estimate of $24 million was prepared in late 2021, before inflationary pressures and in a looser market for drilling services in the region and earlier indications also excluded mobilization and certain other costs.  

With Timor Gap’s commitment via the MoU for the farm-up, SundaGas will seek to advance discussions and assessments of suitable rigs, equipment and personnel. On entry into contract year three of the PSC, the commitment will be to drill an appraisal well within 12 months.

“We are delighted with, and greatly appreciate, TIMOR GAP’s decision to increase its participation in the Chuditch PSC through a paying interest. The proposed Farm-Up is a major step forward, as it provides validation of the project as well as bringing in an early funding partner for the appraisal programme. It also reflects the Timor-Leste Government’s commitment to the development of the country’s petroleum resources and its support for our efforts,” said Andy Yeo, Chief Executive of Baron Oil.

“From here, we will advance our drilling planning for the appraisal well which will include discussions with other potential funding partners. With this proposed Farm-Up, we move a long way forward towards drilling Chuditch-2, whilst retaining operatorship and a majority interest in the PSC.” 

Located approximately 185 kilometers south of Timor-Leste, 100 kilometers east of the producing Bayu-Undan field, and 50 kilometers south of the Greater Sunrise potential development, the Chuditch PSC covers an area of approximately 3,571 km2, in water depths of 50-100 meters, and contains the Chuditch-1 gas discovery drilled by Shell in 1998.