Indonesia farm-in opportunity - Conrad Asia - Duyung PSC

Rob Chambers

Rob Chambers

— 3 min read
Indonesia farm-in opportunity - Conrad Asia - Duyung PSC

(Originally published on May 3, 2023)

For almost three years, I have reported that Conrad Asia have been looking to farm-down some of their 76.5% operated interest in the Duyung PSC in Indonesia, that contains the Mako gas field. It has been reported that they have received offers but have now decided to run a formal process and have engaged the services of our friends at Jefferies to run this. I will update further details on the process as they are available.

Key facts

  • The Duyung PSC was awarded in January 2007 and is currently valid until January 2037.
  • In 2019, the terms of the PSC were renegotiated from legacy Cost Recovery terms to the new Gross Split terms.
  • The current participating interests are Conrad Asia Energy (76.5%), Coro Energy (15%) and Empyrean Energy (8.5%). Conrad are the operator.
  • The Mako field was discovered in 2017, with two appraisal wells drilled in 2019.
  • Following appraisal, a revised plan of development (POD) was submitted. This was approved by the Indonesian government in November 2022.
  • The approved POD is based on developing 2C gas resource of 413 Bcf (Gross). This has been independently audited by Gaffney Cline.
  • The gas has low CO2 (about 3.4%) and no H2S, with minimal liquids.
  • The POD is based on six initial wells, with 2 infill wells after five years. The facilities will include a Leased MOPU with gas processing and compression. A 64km export pipeline will be required to tie into the West Natuna Transportation System (WNTS) at the existing Kakap platform, operated by Star Energy.
  • HOA's have been signed with gas buyers in Singapore but no formal GSA has been agreed.

Why invest

  • The Mako field is appraised and ready for development, pending the GSA.
  • The field can be brought into development quickly, with nearly all of the 2C resource recoverable by the end of the current PSC.
  • The shallow reservoir will allow flexibility on the drilling rig and should ensure a good day rate.
  • The Conrad team have a wealth of history in the region, in Indonesia and with the asset. Some involved from the original operators Transworld Exploration.
  • The returns look very healthy, particularly if the gas price is tied to international markets (Brent / LNG benchmarks).
  • The farm-out should go a long way towards funding Conrad's share of the development.

The challenges and unknowns

  • This is Indonesia. Read my article on the country for more details.
  • As long as the GSA remains unsigned, there is a risk that this could drag out, particularly if Indonesia wants to (somehow) bring the gas to the domestic market.
  • Related to the above, the gas pricing mechanism has not been agreed. If the gas is coming into Singapore, then it is likely to be indexed to either fuel oil or international LNG prices. However, Indonesia (or the operators of the WNTS) may do something funky and look to limit the wellhead price paid and look to make money from the arbitrage, although this would come with its own risks.
  • The competent person's report states an assumption that 88% of the gross gas falls within the Duyung PSC. It is not stated where the remainder sits but, given the location, it is likely to be in the MedcoEnergi-operated South Natuna Block B PSC. It is not clear if a formal unitisation agreement will be required prior to FID.
  • Conrad have no production operations making them a first-time operator.
  • It is not clear how committed / funded the other two partners are.

Summary

I have closely followed Conrad for a number of years. I like the team they have put together and I like the asset. It is very well located and, if they can sell into the Singapore market, should get some good pricing linked to international markets.

Whilst there are some challenges when working in Indonesia, this is a key project for the Indonesian government to follow their positive words with positive actions. Conrad have shown their commitment to the asset and Indonesia and are exactly the kind of company we want to see be successful and grow.

If you would like to more about the asset, then drop me a message.

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