Conrad divesting partial stake in Indonesian field as gas sales agreement enters ‘crucial final stage’

May 3, 2023, by Melisa Čavčić

Natural gas-focused Conrad Asia Energy has set the wheels into motion for a farm-down process of a portion of its interest in the Duyung Production Sharing Contract (PSC), containing a gas field in the West Natuna Sea offshore Indonesia. In addition, the terms of a gas sales agreement for this field are on the cusp of getting hammered out.

Illustration; Source: Conrad Asia Energy

According to Conrad’s partner, Empyrean Energy, the negotiation of the key terms of the Mako gas sales agreement (GSA) between a Singapore buyer and the Indonesian regulator (SKK Migas) is expected to be finalised during the second quarter, with the Mako gas field being “an important strategic gas asset” for both countries.

The company highlights that the continued GSA negotiations have allowed Conrad to take advantage of “an improved and favourable pricing environment,” given strong worldwide gas demand and low supply. West Natuna Exploration Ltd (WNEL) is the operator of the Mako gas field, located in the Duyung PSC, and a wholly owned subsidiary of Conrad, which holds a 76.5 per cent participating interest in the Duyung PSC along with Coro Energy with a 15 per cent participating interest and Empyrean Energy with an 8.5 per cent participating interest.

Empyrean points out that the Mako gas field is the largest undeveloped and fully appraised gas field in the West Natuna Basin and gas is exported from the basin by pipeline to Singapore. The company underscores that a competent person’s report – commissioned as part of Conrad’s IPO late last year – estimated that Mako would generate gas sales of $2.4 billion net to Conrad’s 76.5 per cent interest (approximately equivalent to $266 million net to Empyrean).

Furthermore, Conrad has engaged a global investment bank to lead a farm-down process for the divestment of a portion of its interest in the Duyung PSC and bids are expected to be received during the second quarter. Based on Empyrean’s statement, the industry response has been “encouraging.”

The company intends to participate pro rata in the farm-down process through certain drag along/tag along clauses in the Duyung joint operating agreement. In addition, the firm has notified Conrad and the global investment bank that it will entertain bids for its entire 8.5 per cent interest.

Tom Kelly, Empyrean CEO, commented: “Empyrean is pleased to note that GSA negotiations look to be entering a crucial final stage with tripartite meetings being held with Conrad, the Singaporean buyer and SKKMigas. We welcome the divestment process which we view as the most appropriate way to monetise our interest in Mako and look forward to providing an update as these important negotiations unfold.”

In a separate statement, Coro Energy also revealed that it might participate pro rata in the farm-down process as various drag and tag along clauses exist in the joint operating agreement. Additionally, the company says that it may entertain a full exit, depending on the terms offered.

The Duyung PSC, which runs until 16 January 2037, was awarded in 2007 under the cost recovery regime, originally covering an area of 4,641 square kilometres, and after fulfilling all the relinquishments and work programme commitments, the PSC now covers a final area of 927 square kilometres. The Mako gas field was discovered by Conrad through the drilling of the Mako South-1 well in 2017 and a plan of development (POD) for the field was approved in 2018.

After subsequent appraisal drilling and testing of two wells in 2019 further delineated the gas field, additional gas resources were identified and Conrad received written approval from the Indonesian Minister of Energy and Mineral Resources of the POD revision for the Mako gas field in November 2022 to accommodate greater gas volumes and attendant production rates.

Gaffney, Cline & Associates’ CPR indicates that the Mako field contains full field 2C resources of 413 Bcf and holds high-quality gas – 98 per cent methane, no mercury, no heavy metals – requires no LNG refrigeration emissions/energy consumption, has no requirement for regasification and a lower carbon footprint. The first gas sales are currently scheduled for 2025.

Conrad has been working on expanding its footprint offshore Indonesia. To this end, the company inked production sharing contracts for two blocks in January 2023.