Coro Energy makes its first Indonesian acquisition

Coro Energy, an AIM listed gas explorer, has signed binding conditional agreements for its first acquisition in Indonesia, which comprises a 42.5% interest in the Lengo gas field, offshore East Java.

Coro said on Monday that the company is entering Indonesia through a 42.5% interest in the shallow water Bulu Production Sharing Contract (PSC), offshore East Java which contains the Lengo gas field.

The Lengo field has independently certified gross 2C resources of 359 bcf of recoverable dry gas with gross 3C resources of 420 bcf.

The field development plan has already been approved by the Indonesian authorities. The company said that marketing efforts targeting the Tuban industrial complex in East Java were underway and an MOU was signed with a gas buyer earlier this year.

The deal results in Coro acquiring over 152 bcf of discovered, appraised and certified net 2C gas resources, with an upside of over 26 bcf of net additional gas resources for a total consideration of $10.96 million-plus cost reimbursements of approximately $1.04 million.

James Menzies, Coro CEO, said: “This first Indonesian acquisition provides Coro with a strong initial platform on which to progress our South East Asian growth strategy. It has been crucial for us to find the right asset on which to build and being an asset with solid, proved gas resource base together with substantial technical and commercial upside; I believe this transaction delivers that.

“The Lengo gas discovery is the right scale and in the right address, with an approved development plan and direct access to high-value markets. We look forward to developing the full potential of the asset and the acreage around it as we build a regional portfolio.”

The company added that it was continuing to review and progress a number of other material opportunities in South East Asia, in line with its strategy of developing a business focussed on finding and commercializing oil and gas resources.

Financial details

Coro is stepping into a deal that was originally agreed between the current asset holder AWE Limited and HyOil. It is worth reminding that AWE is now a wholly owned subsidiary of Mitsui & Co Limited.

This current transaction is being effected through two agreements. The first agreement between Coro, HyOil, and AWE in which the original sales and purchase agreement between HyOil and AWE is terminated. The second agreement is a brand new deal between Coro and AWE.

Under these agreements, Coro will pay HyOil up to $4 million in Coro shares and will pay AWE a total of approximately $8 million in cash to cover the purchase price, cost reimbursement, and other working capital adjustments.

Specifically, Coro will pay to HyOil $2 million upon the closing of the transaction which will be satisfied by the issue of 42,434,465 new ordinary shares issued at 3.6255 pence each.

The company will also pay $1 million in new Coro shares upon the signing of the first gas sales agreement and $1 million in new Coro shares following the start of commercial production from the field.

As a result of these transactions, Coro will become a direct 42.5% holder of the Bulu PSC. The remaining 57.5% participating interest is held between operator Kris Energy (42.5%) and two local partners, Satria Energindo (10%) and Satria Wijaya Kusuma (5%).

Completion of the transactions is conditional on JV partner pre-emption and regulatory government approvals.

Lengo gas field

The Bulu PSC has a term of 30 years and is due to expire in October 2033. The PSC is located in water depths of approximately 60 meters.

The Lengo field is located approximately 65 kilometers from the coast of East Java. The reservoir is a Miocene-age carbonate build up at a depth of approximately 700 meters, with good porosity and permeability characteristics.

The Lengo gas field was discovered in 2008 by the Lengo-1 well which tested at a rate of 12.9 mmscf/d and successfully appraised in 2013 by the crestally located Lengo-2 well which flow tested at over 21.2 mmscf/d, confirming a consistent gas-water contact and reservoir properties across the structure. A plan of development (POD) was submitted and approved in November 2014.

The approved POD includes an initial four wells from a small unmanned platform, with a pipeline back to an onshore receiving facility and processing plant. Production from the field is envisaged to plateau at circa 70 mmscf/d.

Past seismic and drilling in the block has, to date, resulted in a cost pool of approximately $100 million.