AWE sells stake in Lengo gas project

Australian oil and gas exploration and production company, AWE, has entered into an agreement to sell its 42.5% interest in the Bulu PSC, offshore Indonesia, to a subsidiary of HyOil for cash consideration of up to A$27.5 million ($20.6M). 

The transaction is subject to Indonesian government approval. The Bulu PSC is located offshore east Java and includes the undeveloped Lengo gas project.

Participants in the Bulu PSC include: AWE and KrisEnergy (operator) each with 42.5%, PT. Satria Energindo 10%, and PT. Satria Wijayakusuma 5%.

The transaction is structured in two tranches: A$15 million up-front cash payment following the receipt of Indonesian government approval for the transfer of ownership; and an additional cash payment following the execution of a gas sales agreement (GSA) of A$5 million if the contract gas price is at or exceeds US$5.50/mmbtu, plus a further A$7.5 million if the contract gas price is at or exceeds US$7.65/mmbtu.

According to the company, the sale is expected to be neutral for accounting purposes, with a nominal book gain after tax anticipated after final purchase price adjustments. AWE will receive a cash deposit of A$1.5 million and the effective date is April 1, 2016.

David Biggs, AWE’s Managing Director and CEO, said the company was divesting non-core assets in order to recycle capital into high value growth projects, such as the Waitsia gas project in Western Australia.

“The sale of Lengo, when completed, will further reduce capital commitments and strengthen the company’s balance sheet,” he said.

“In the current low-oil price environment, we are focused on achieving near-term growth through the delivery of valuable domestic gas projects. We have commenced construction of Stage 1A of the Waitsia gas project, an A$18 million (gross) development that will supply gas to the historically strong Western Australia domestic gas market from the third quarter of this calendar year.

“The Waitsia joint venture is already considering options for the next phases of development to deliver up to 100 TJ/day, and gas marketing is well under way,” Biggs said.

“In addition, over the next 12 to 24 months we will be recontracting gas from our east coast production assets in the Bass and Otway basins and we anticipate achieving gas prices substantially higher than the historic contracts,” he said.

“In Indonesia, we remain focused on progressing the Ande Ande Lumut (AAL) oil project (101 mmbbls gross recoverable oil, net 24.3 mmbbls to AWE), which will provide AWE with exposure to any rise in oil prices.

“The joint venture is planning to drill an appraisal well on the underlying G-sand reservoir before the end of the current financial year, which has the potential to increase the AAL project’s total gross recoverable oil by a further 30 to 40 mmbbls.”