AIM-listed Empyrean Energy has entered into a sale and purchase agreement to conditionally acquire up to a 20 per cent shareholding in West Natuna Exploration Ltd ('WNEL') from Conrad Petroleum. Conrad Petroleum is the registered and beneficial owner of WNEL, which holds a 100 per cent Participating Interest in the highly prospective Duyung Production Sharing Contract ('Duyung PSC') in Indonesia. Following completion of the Acquisition, Conrad Petroleum will retain an 80 per cent. shareholding in WNEL and will remain the operator of the Duyung PSC.
The Acquisition follows the Company's recent investment in Block 29/11, located offshore China in the Pearl River Mouth Basin and is the next step in building an Asian offshore oil and gas portfolio of projects which boast mature targets and significant reserve potential. The Duyung PSC includes the Mako shallow gas discovery which, according to the LEAP CPR (as defined below) is estimated to contain 400 Bcf to 1.3 Tcf of gas in place. In addition, the permit contains a number of other drilling opportunities in a prolific proven basin with nearby infrastructure to support any development and production.
Three previous wells drilled at Mako in 1975, 1996 and 1999 intersected the gas zones but were not flow tested. Two of these wells were targeting deeper oil and the third well, targeting gas, encountered technical difficulties and so no flow test was completed. LEAP Energy, the international subsurface consulting and technology delivery group, completed a Competent Persons Report on the Mako discovery in 2017, which attributed 2C and 3C Resources of 433 Bcf and 646 Bcf recoverable gas, respectively (the 'LEAP CPR').
A new well on the Mako discovery, the Mako South1 Well, is planned to spud in late Q2 / early Q3 2017 targeting the IntraMuda sands. The objective of the well is to flow test the gas sands and provide key data on the permeability and gas saturation properties of the reservoir.
The Duyung PSC is an offshore permit of over 1,100km2 in the West Natuna Basin, one of Asia's most prolific proven basins, and is located in waterdepths of 60110 metres and close to existing pipeline infrastructure owned by the Indonesian Government.
High impact exploration leads and prospects have been identified within the Duyung PSC through analysis of existing 2D and 3D seismic data which was acquired in 2008 and 2009 respectively, indicating exploration upside potential of over 4 Tcf of gas and 120 mmbbl of oil (including Mako).
The permit also benefits from its proximity to key energy markets in Singapore, Malaysia and Indonesia (including both Batam Island and Sumatra), where there is a favourable domestic gas outlook. According to international oil and gas advisory firm RISC Advisory power generation is forecast to be the biggest source of gas demand and account for 35 per cent. of the 35,000 MW power acceleration programme to be built in 2014 - 2019.
Indonesia's demand for gas is forecast to grow strongly over the next decade, despite being the seventh largest producer of LNG in the world and the 28th in terms of oil production. This is due to a relatively low electrification rate which, as recently as 2013, stood at 81 per cent. This means that 60 million people in the country did not have access to electricity. Such low rates of electrification and frequent power outages are widely believed to have held back the country's economic growth in the past. In response, the Government of Indonesia has set itself the target to add 35,000MW of new electricity capacity by 2019, a 60 per cent. increase in total domestic power generation.
Empyrean CEO, Tom Kelly, said: 'The Duyung PSC, with the high impact Mako shallow gas play to commence drilling in the near term, provides an exciting complement to our project in offshore China, Block 29/11. Existing subsurface data has established that gas is present within the Mako reservoir, reducing typical geological risk considerably. We believe that the Mako South1 well has highly compelling upside and is designed appropriately to address the uncertainty related to the flow potential of the Mako reservoir. We expect the results of this first well in Q3 2017, with drilling in Indonesia scheduled to take place at about the same time as we expect to be shooting 3D seismic in China.
'The acquisition reflects our recent focus on building an oil and gas company with a strong presence in Asia. Apart from Mako, the Duyung PSC has a host of significant leads and prospects already identified by both 2D and 3D seismic where Conrad has invested significant capital delineating these drilling opportunities. Together with our recent investment in Block 29/11, located in the Pearl River Mouth Basin offshore China, we believe that our newly established portfolio has the potential to provide us with significant production opportunities in the future.'