SINGAPORE: Jadestone Energy Inc., an independent oil and gas production company focused on the Asia Pacific region, announced that it has executed an acquisition agreement with Mandala Energy Lemang Pte Ltd to acquire an operated 90% interest in the Lemang production sharing contract, 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.

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 gas1.

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.

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 occur2.  

The Company believes the acquisition represents exceptional value to Jadestone shareholders.

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.

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.”