Andalas Inks Conditional Farm-in Deal for Tuba Obi East Block in Sumatra

Andalas Energy and Power Plc (formerly CEB Resources), the AIM listed investment company, disclosed Tuesday that it has conditionally entered into a farm-in agreement for the Tuba Obi East (TOE) Technical Assistance Contract (TAC) (the concession), which is located in the South Sumatran basin approximately 18.6 miles (30 kilometers) north-west of Jambi city in Jambi province, Sumatra.

Highlights

  • Andalas (ADL) to acquire 30 percent working interest in TOE TAC via a farm-in
  • TOE is the entry point for Andalas into the profitable Indonesian gas and power sector
  • Any future gas production from the concession may support either:
    • Gas export with the project located close to a major export route; or
    • Gas-to-power being located in an area where a significant shortfall in power generation exists
  • Farm-in via execution of a $1.075 million work program
  • Work program comprises technical studies and the drilling and testing of one well which would be put into production on success
  • Work program is being jointly operated by Andalas
  • Planning and preparations for drilling are advancing rapidly
  • Subject to well results, further gas and power development studies will be undertaken
  • Gaffney Cline and Associates is in the final stages of completing a Competent Person’s Report (CPR) assessing the gas resources within the TAC; and
  • Farm-in constitutes a reverse takeover pursuant to the Aim Rules and, accordingly, the farm-in agreement is subject to the approval of Andalas’ shareholders in general meeting
  • An admission document which will include notice of a general meeting seeking shareholder approval will be published in due course

Andalas CEO, David Whitby, said “The signing of this agreement follows the Letter of Intent announced on Feb. 3 and secures ADL’s foundation gas asset. We are keen to take full advantage of the opportunity Tuba Obi East now affords Andalas, and we regard it as the base upon which a profitable Indonesian gas and power business can be built.

“TOE has all the essential features to be a successful first asset for the Company. It has gas proven by two wells into the reservoir zone that has been defined on 3D seismic and confirmed by well logs, all whilst located in a prolific hydrocarbon basin. In addition, the field is close to both gas and power infrastructure and has easy access to Indonesia’s burgeoning energy market which is generating high prices for producers. It represents an unrivalled opportunity for a new Indonesian gas and power market entrant like ADL.”

Farm-in Summary

As previously announced, under the terms of the proposed farm in, Andalas will acquire a 30 percent direct working interest in the concession through the execution of a single well work program. The work program includes the completion of a geological, geophysical and reservoir (GG&R) study along with the drilling and flow testing of a single well to assess the deliverability, recoverable volumes, and gas quality in the Air Benakat formation.

Block operator PT Akar Golindo and Andalas will jointly operate the well work program, which is expected to cost around $1.075 million. Andalas has also agreed to pay a further sum of $500,000 to PT Akar Golindo if the concession is renewed beyond its expiry date of May 15, 2017.

Pursuant to Rule 14 of the AIM Rules for Companies this farm-in constitutes a reverse takeover and, accordingly, the farm-in agreement is subject to the approval of Andalas’ shareholders in general meeting.

Work Progress

Under the terms of the agreement the Company will be the technical operator for the Tuba Obi East well work program. Accordingly, ADL’s in-country team has expedited the design, planning and site preparations for the farm-in well (provisionally called TOE-2). The concession operator, PT Akar Golindo, has also been supporting this work.

Two well locations (a preferred location and an alternate) have now been selected and site surveys have been completed, along with the inspection of potential drilling rigs, during the week commencing Feb. 22. The drilling team is now progressing the rig selection process whilst services contracting continues apace, with the preparation of critical tender documents.

Additionally, ADL has prepared a draft gas and power development plan for the TOE concession. As part of the TOE-2 well approval process this plan will be presented to Pertamina (the Indonesian national oil company) in the coming weeks. Work has also commenced on a power production feasibility study in parallel with GG&R evaluations of gas discoveries in the area surrounding the concession.

As part of the reverse takeover process, representatives from the Company’s nominated adviser, Cantor Fitzgerald (Europe), have visited the field. Gaffney Cline and Associates in Singapore has almost completed its CPR assessing the gas resources within the concession. The results of their analysis are expected shortly. Andalas will publish the Admission Document in due course.

Tuba Obi East Gas

Tuba Obi East is located in the South Sumatran basin approximately 18.6 miles (30 kilometers) north-west of Jambi city. The wells previously drilling in the concession have tested gas in the key South Sumatra hydrocarbon bearing formations, namely, the Air Benakat Formation (ABF) and the Talang Akar Formation (TAF). A total of six wells (three wells within the concession and a further three just outside) have been drilled through these zones, with a number having been logged across the ABF and TAF. Several have also flowed gas to surface.

Crucially, the ABF has flowed gas outside the TAC at commercial rates, but only limited data from this formation has been gathered within the concession area. Andalas’ technical analysis indicates that this reservoir zone contains potentially substantial gas resources that can be proven via the drilling and flow testing of the proposed TOE-2 well. If the work programme proves successful, the TOE-2 may be completed as a future production well.

Further GG&R and development studies will be undertaken following the analysis of test results from the well. This work will be conducted in parallel with development planning and a proactive approach to the renewal and extension of the concession contract. Preliminary discussions will also be held with targeted gas and power consumers.

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