Andalas Energy and Power Plc Agreement to acquire Indonesian project

 
TIDMADL 
 
29 August 2018 
 
                         Andalas Energy and Power Plc 
 
                         ('Andalas' or the 'Company') 
 
               Conditional Acquisition of Indonesian oil project 
 
Andalas Energy and Power Plc, the AIM listed oil and gas company (AIM: ADL), is 
pleased to announce it has entered into a conditional agreement to acquire an 
interest in the Bunga Mas Production Sharing Contract (the "Bunga Mas PSC" or 
the "PSC"), located in South Sumatra, Indonesia. 
 
Highlights: 
 
  * Acquisition of initial 25% participating interest in Bunga Mas PSC via a 
    corporate acquisition with right to increase interest to 49% and then 100%. 
 
  * Consideration of 19,200,000 Andalas ordinary shares to be issued as 
    follows: 
 
      + 9,600,000 shares on completion of the acquisition of the initial 
        participating interest ("Completion"). 
 
      + 9,600,000 shares on regulatory approval of increase of interest to 49%. 
 
      + The consideration shares, representing 6.5% of Andalas' current issued 
        share capital, to be issued at the prior 5-day volume weighted average 
        at the date of issue. 
 
  * Completion is subject to various matters including extension of the 
    exploration period of the PSC. 
 
  * Andalas to undertake new exploration and development of the PSC as an 
    exclusive operation entitling it to 100% of the cash flows available to 
    participating interest owners under the PSC. 
 
  * The Bunga Mas PSC is located onshore, near existing upstream facilities, in 
    the prolific producing South Sumatra basin, Indonesia: 
 
      + Within the PSC, the Bunga Mawar field has been assessed by the operator 
        to contain 2C contingent resources of 0.22 million barrels of oil 
        ("MMBO") and best prospective resources of 2.09 MMBO (gross) in the Air 
        Benakat formation. 
 
      + Initial work programme plans to test the Bunga Mawar field and to 
        convert prospective resources to additional contingent resources which 
        will form the basis for a plan of development. 
 
      + Further details of work programme to be announced on completion. 
 
  * The acquisition includes a pro-rata share of unaudited brought forward past 
    costs that are recoverable by participating interest owners from future 
    revenues in priority to various other distributions ("Cost Pool"). 
 
  * Previous expenditures on the PSC total US$111,695,000 (gross) of which a 
    proportion is expected to be Cost Pool attributable to the Bunga Mawar 
    project and will, assuming recovery is permitted by the regulator 
    significantly enhance the projects economics. 
 
  * A further detailed description of the transaction and the asset, including 
    a royalty created by the vendor, is set out below. 
 
  * The operator has assessed the PSC to include the resources set out in Table 
    1 below: 
 
Table 1 Gross resources (Notes 1, 2, 3, 4, 5 and 6): 
 
Bunga Mawar Field: 
 
Resource Description                        Oil/Cond. Recoverable (mmbbls)        GCOS 
 
                                             1C           2C           3C 
 
Contingent Resources (Note 1)               0.08         0.22         0.46 
 
                                            Low          Best         High         % 
 
Prospective Resources (Note 3 and 4)        0.52         2.09         6.54        44% 
 
Other Structures on Licence: 
 
Contingent Resources (Note 1)           Gas Recoverable (net of CO2) (Bcf)      COS 
 
Structure                                   1C           2C          3C          % 
 
Melati (Note 2)                           22.00        26.00        32.00       30% 
 
 
 
Prospective Resources (Note 3)            Oil/Cond. Recoverable (mmbbls)        GCOS 
 
Structure                                  Low         Best         High         % 
 
Bakung                                    0.77         10.19        32.96       23% 
 
Sakura                                    1.50         8.82         30.49       20% 
 
Anggrek                                   0.80         6.80         13.37       15% 
 
Melati East                               1.18         3.13          8.7        20% 
 
Melati West                               8.52         25.58        51.56       23% 
 
Simon Gorringe, CEO of Andalas Energy and Power PLC said "We are very pleased 
to have reached agreement with the vendor for the acquisition of interests in 
the Bunga Mas PSC.  It is an all share deal structured to align the interests 
of the vendor and our shareholders and ensure that consideration does not pass 
and additional costs are not incurred until the deal completes. 
 
"The PSC contains the Bunga Mawar field, which was discovered in 2012 by the 
drilling of the Bunga Mawar-1 well into the Air Benakat formation, which 
produced sweet light crude of 45o API from a depth of 704 m.  Our initial work 
programme will target the Bunga Mawar Field, following which we expect to 
submit, for approval, our Plan of Development to bring the field into 
production and will then look to appraise and develop the other oil and gas 
accumulations on the licence." 
 
Note 1:  Contingent Resources are defined as those quantities of petroleum 
estimated, as of a given date, to be potentially recoverable from known 
accumulations by application of development projects but which are not 
currently considered to be commercially recoverable due to one or more 
contingencies. Contingent Resources are a class of discovered recoverable 
resources. 
 
Note 2:  Based on well test data and analysis supplied by the Operator and 
reviewed by Andalas, the Bunga Melati 1 well tested natural gas from the Talang 
Akar Formation (TAF) at rates up to 11.8 mmscfd.  However, the gas analysis 
determined the CO2 content to be 67%.  Bunga Melati is a discovered 
accumulation.  Future commercial development will be dependent on further 
appraisal and the ability to address the CO2 content. The low chance of success 
("COS") reflects the likelihood of a future commercial development. 
 
Note 3:  Prospective Resources are defined as those quantities of petroleum 
that are estimated, as of a given date, to be potentially recoverable from 
undiscovered accumulations.  The GCOS in respect of the Bungar Mawar 
prospective oil resource was assessed by Andalas using information provided by 
the Operator. 
 
Note 4: The work programme in contemplation has the potential to move these 
Bunga Mawar Prospective Resource volumes to the Contingent Resource category, 
and ultimately, with the preparation and approval of a Plan of Development for 
the field to the Reserves classification. 
 
Note 5: The tables present the gross contingent and prospective resources 
within the Bunga Mas PSC.  Following completion Andalas has the right to seek 
to extract 100% of the oil and gas potential.  However, whilst the volumes 
above are the estimated potentially recoverable volumes, the economic 
entitlement to Andalas will be dictated by the terms of the PSC and Andalas' 
percentage working interest held in each operation. 
 
Note 6: The work carried out in calculating the Contingent and Prospective 
Resources above was done using international resources and reserves reporting 
and classification standard adopted by the AIM market of the London Stock 
Exchange plc - the March 2007 SPE/WPC/AAPG/SPEE Petroleum Resources Management 
System ("PRMS"). 
 
About the Bunga Mas PSC 
 
The Bunga Mas PSC was initially entered into on 7 October 2005 in respect of an 
initial contract area in South Sumatra comprising 2,233 km2 and which now 
comprises an area of 447 km2 after relinquishments in accordance with the PSC. 
The term of the PSC is 30 years and includes an initial term for exploration 
after which the contractor may progress to further periods for development and 
then exploitation.  The exploration term is the subject of an application for 
extension and the granting of that extension is a condition precedent to 
completion of the sale and purchase agreement. 
 
The PSC provides that the contractor (i.e. the participating interest owners) 
is entitled to 35.7% of the oil and 71.4% of the natural gas available for 
distribution after recovery by the contractor of its permitted costs (including 
the brought forward cost pool).  The PSC also contains customary provisions 
regarding first tranche petroleum and domestic market obligation. 
 
Prior contractors have incurred expenditures of US$111,695,000 in exploring the 
PSC.  Andalas expects a proportion of this expenditure will be recoverable by 
Andalas in priority to distributions of profits to the state.  The bulk of the 
original exploration was focussed on the discovery of gas. 
 
Description of the transaction 
 
Andalas has entered into a sale and purchase agreement pursuant to which it has 
agreed to acquire 100% of Aura Violet International Ltd ("AVI") from Tilegarre 
Corporation. 
 
AVI is the parent company of PT Bunga Mas Energi ("BME").  BME has a 25% 
participating interest in the PSC.  The other participating interests in the 
PSC are held by Bunga Mas International Company ("BMIC") as to 51% and Dorato 
Fiore Pacifico Ltd ("DFP") as to 24%.  BMIC is the operator of the PSC.  Each 
of AVI, BMIC and DFP are subsidiaries of Arctic Bay Ventures Inc ("ABV"). 
 
In consideration, Andalas has agreed to issue 19,200,000 fully paid ordinary 
shares in two equal tranches.  The first tranche shall be allotted on 
Completion and the second tranche shall be allotted on receipt of the approval 
of SKK Migas and the Government of the Indonesia to the transfer by DFP of its 
participating interest to BME. 
 
The sale and purchase agreement is conditional on: 
 
 1. DFP agreeing to assign its 24% participation interest in the PSC to BME for 
    $1 and submission to SKK Migas of an application to approve the transfer; 
 
 2. The Indonesian Minister of Energy and Mineral Resources approving an 
    extension to the exploration period of the PSC on terms acceptable to 
    Andalas and various other related matters; 
 

 3. Various parties including the ABV group entering into a further agreement 
    ("Framework Agreement") to regulate the activities of BMIC, DFP and BME 
    under the joint operating agreement ("JOA") and various other matters; and 
 
 4. Various procedural matters necessary to perfect the transaction. 
 
The agreement has a longstop date of 31 December 2018. 
 
The Framework Agreement, which the parties must execute at Completion, provides 
that further exploration and development on the PSC will be undertaken as an 
exclusive operation by BME in accordance with the JOA.  Accordingly, all future 
PSC revenues available to participating interests and all expenses shall be for 
the account of BME. 
 
Initially, BMIC shall continue to be the operator.  However, Andalas has the 
right to require BMIC to withdraw from the PSC and transfer its participating 
interest to BME for $1.  At this stage, BME would seek to be the new operator. 
 
If BME has not commenced its exclusive operations within 7 months after 
Completion, Artic may sell BMIC to a third party and permit it to undertake 
exclusive operations. 
 
Prior to Andalas executing the sale and purchase agreement, each of BMIC, DFP 
and BME granted a royalty in favour of Arctic ("Royalty") pursuant to which 
they agreed to pay: 
 
 1. 20% of the proceeds, net of tax, from the sale of that portion of 
    production allocated to the participating interest owners for the recovery 
    of costs ("Cost Hydrocarbons") incurred in relation to the development of 
    the Mawar formation until such time as the aggregate proceeds distributed 
    to participating interest owners is $19.7m or such other sum as SKK Migas 
    permits for the recovery of the costs incurred to date in relation to that 
    project; and 
 
 2. 5% of the proceeds, net of tax, from the sale of all hydrocarbons allocated 
    to the participating interest owners other than Cost Hydrocarbons ("Profit 
    Hydrocarbons"). 
 
Andalas has granted Arctic an option to purchase a 20% participating interest 
in the PSC.  The consideration payable on exercise of the option is the 
termination of the Royalty and a cash sum equal to all amounts paid to Arctic 
pursuant to the Royalty.  The option may only be exercised after completion of 
the sale and purchase agreement and DFP transferring its participating interest 
to BME provided that notice is given before 30 June 2020. 
 
In addition, Arctic has granted Andalas an option to purchase each of BMIC and 
DFP for $1 each and an option to put AVI back to Arctic for $1. 
 
The unaudited management accounts of the acquired group of companies for the 
period from 1 January 2018 to 30 June 2018 showed a pre-tax loss of $30,811 and 
net liabilities as at 30 June 2018 were $13,888.  The effective date of the 
agreement, once all conditions have been achieved, is 1 May 2018. 
 
Reserves and Resources Cautionary Statement 
 
Oil and gas reserves and resource estimates are expressions of judgment based 
on knowledge, experience and industry practice.  Estimates that were valid when 
originally calculated may alter significantly when new information or 
techniques become available.  Additionally, by their very nature, reserve and 
resource estimates are imprecise and depend to some extent on interpretations, 
which may prove to be inaccurate.  As further information becomes available 
through additional drilling and analysis, the estimates are likely to change. 
This may result in alterations to development and production plans which may, 
in turn, adversely impact the Company's operations.  Reserves estimates and 
estimates of future net revenues are, by nature, forward looking statements and 
subject to the same risks as other forward looking statements. 
 
Qualified Person's Statement 
 
The technical information contained in this announcement has been reviewed and 
approved by Mr. Gregor Mawhinney. Mr. Mawhinney is consulting for Andalas, 
acting in the role of Vice President Operations. He has nearly 40 years' 
experience in the oil and gas industry, is a member of the Society of Petroleum 
Engineers (SPE) and a member of the Professional Engineers and Geoscientists of 
Newfoundland and Labrador (PEGNL). 
 
The information contained within this announcement is deemed by the Company to 
constitute inside information as stipulated under the Market Abuse Regulations 
(EU) No. 596/2014 ('MAR).  Upon the publication of this announcement via a 
Regulatory Information Service ('RIS'), this inside information is now 
considered to be in the public domain. 
 
For further information, please contact: 
 
Simon     Andalas Energy and Power Plc                  Tel: [phone] 
Gorringe 
 
Roland    Beaumont Cornish Limited                      Tel: [phone] 
Cornish/  (Nominated Adviser) 
James 
Biddle 
 
Colin     Novum Securities Limited                      Tel: [phone] 
Rowbury   (Joint Broker) 
 
 
Christian Optiva Securities Limited                     Tel: [phone] 
Dennis    (Joint Broker) 
 
Stefania  Cassiopeia Services                           [e-mail] 
Barbaglio Limited 
          (Public Relations) 
 
Glossary: 
 
Unless otherwise stated, words and expressions used in this announcement have 
the same meaning as is given to them in the SPE Petroleum Resources Management 
System. 
 
1C                 Low estimate of Contingent Resources 
 
2C                 Best estimate of Contingent Resources 
 
3C                 High estimate of Contingent Resources 
 
bbl                Barrel 
 
Bcf                Billions of cubic feet 
 
Best (or mid)      or P50, a 50% probability that a stated volume will be 
estimate           equalled or exceeded 
 
COS                Commercial chance of success 
 
GCOS               Geological chance of success 
 
GIIP               Gas initially in place 
 
High estimate      or P10, a 10% probability that a stated volume will be 
                   equalled or exceeded 
 
Low estimate       or P90, a 90% probability that a stated volume will be 
                   equalled or exceeded 
 
MMbbl              million barrels 
 
Recoverable Gas    Those quantities of hydrocarbon gas which are estimated 
                   to be producible from accumulations, either discovered or 
                   undiscovered. 
 
Recoverable        Those quantities of hydrocarbon liquids which are 
Liquids            estimated to be producible from accumulations, either 
                   discovered or undiscovered. 
 
 
 
END 
 

(END) Dow Jones Newswires

August 29, 2018 02:00 ET (06:00 GMT)