Indonesia Extends Exploration Period for Sumatra's South Block A PSC

Peak Oil & Gas Limited announced Friday that the Indonesian Ministry of Energy and Mineral Resources has approved a 19 month extension to the Exploration Period of the South Block A (SBA) Production Sharing Contract (PSC) in North Sumatra, Indonesia.

This extension means that the Exploration period will now end Dec. 4, 2016 and allows the PSC Contractor further time to drill one exploration well in order to fulfil the PSC Firm Commitment.

Earlier this month, Peak shareholders approved a resolution for Peak’s interest in the SBA PSC to be sold. The directors are pursuing avenues for the sale of Peak’s SBA Interests and aim to close a transaction before the end of the Financial Year.

South Block A PSC – North Sumatra, Indonesia

Peak’s majority controlled company, Renco Elang Energy Pte Ltd (REE), is Operator of the South Block A PSC with a 51 percent working interest (Peak’s 75 percent shareholding in REE equates to a net economic interest of 38.25 percent).

SBA Joint Venture Interests

• REE (Operator)* - 51 percent; Peak holds 75 percent of RE, the Operator and 51 percent interest holder in SBA(effective net to Peak of 38.25 percent)
• KRX Energy (SBA) Pte Ltd. (KRX) - 35 percent; An indirect subsidiary of Lion Energy Ltd.
• PT Prosys Oil & Gas - 14 percent

*REE Shareholdings is as follows:

REE Shareholders

• Peak Oil & Gas Limited subsidiaries - 75 percent
• PT Realto Energi Nusantara Corelasi - 18.125 percent
• Elang Energi Inc. - 6.875 percent

Potential Exploration Well

Following processing of the 113.7 miles (183 kilometers) seismic survey, seismic interpretation led to selection of a possible drilling location for a low-risk, shallow well (around 2,297 feet (700 meters) total depth) targeting high quality oil on the Paya Bili structure. Small volumes of oil were produced from this structure during the early 1900s. The Paya Bili structure has also been the subject of three deeper wells drilled by Asamera Oil (Indonesia) Ltd in 1976 and 1982. The location of the possible shallow well, to be named Amanah Timur-1, is shown on the enclosed map and seismic line.

Following receipt of notification of extension to the PSC term, and in consideration of the recent decline in oil price, a prospectivity review will now be undertaken to determine the best prospect for drilling. This prospectivity review will evaluate all field data and consider the Djerneh, Simpang Deep, and Sungai Iyu targets, in addition to the Paya Bili prospect (Amanah Timur-1).

Located in Prolific Basin

South Block A PSC is located in the prolific North Sumatra Basin, in proximity to an established pipeline and facilities. The presence of an active petroleum system in the vicinity of the proposed Amanah Timur-1 well location is validated by both light, 50 degree API, high quality live oil samples produced from shallow boreholes hand drilled by local residents and confirmed by the record of historic oil production on the Paya Bili structure.

Drilling by Asamera from the 1970s through to the early 1990s produced indications of oil and gas in many wells in the area.

South Block A has potential for both oil and gas development, with both commodities in strong demand within Sumatra. The joint venture is encouraged by recent reports from Medco, operator of the neighbouring Block A PSC, where a gas sales contract has been signed with a gas price of $9.45 MMBTU (million British thermal unit) highlighting the strength of the gas market in the area. A number of attractive gas-condensate prospects continue to be matured through ongoing seismic interpretation activities.

Gas Pipeline Infrastructure

A new gas pipeline has been constructed between Lhokseumawe and Medan, the largest city in Sumatra and the fourth largest city in Indonesia, and provides a new incentive for gas exploration in the SBA block as a potential contribution to the increasing energy demand required to underpin the continuation of strong economic growth in the surrounding region.

The pipeline passes through SBA and is reported to have a capacity of 400 million standard cubic feet per day (MMscf/d) and will transport gas from the Arun gas facilities (including an LNG receival terminal currently being built). Peak understands it will be an open access pipeline with around 200 MMscf/d forecast spare capacity. The pipeline is located close to key prospects within the SBA permit and could assist in commercialising any gas discovery the SBA Joint Venture may make through its drilling program.