Jadestone expands its stake in Australian offshore oil-producing fields

AIM-listed and Singapore-headquartered oil and gas player Jadestone Energy has set the wheels into motion to get its hands on additional interest in a Woodside Energy-operated project, encompassing oil-producing fields offshore Australia.

To this end, Jadestone executed a sale and purchase agreement with Japan Australia LNG (MIMI) to acquire MIMI’s non-operated 16.67% working interest in the Cossack, Wanaea, Lambert, and Hermes (CWLH) oil fields development – known as the North West Shelf oil project offshore Western Australia – for a total initial cash consideration of $9 million, and certain subsequent abandonment trust payments. The acquisition is going to boost the company’s non-operated working interest in the CWLH fields from 16.67% currently to 33.33% on completion.

This comes almost a year after the company bought BP’s stake in this project. Located within four production licenses (WA-3-L, WA-11-L, WA-13-L, and WA-16-L) in the North Carnarvon basin offshore Australia, the project comprises 13 subsea wells producing through the FPSO Ohka, which was installed at the fields in 2011 and has 60,000 bbls/d of oil processing capacity, along with water handling and gas processing/reinjection facilities.

Paul Blakeley, Jadestone’s President and CEO, commented: “Since acquiring our initial CWLH interest in November 2022, the subsurface performance has exceeded expectations, validating our work and de-risking the significant upside potential we see across the fields. As such, we are pleased to be increasing our interest in a very high-quality, long-life asset with low decline rates at an attractive 2P acquisition cost of $1.7/bbl, or less than $1/bbl on a 2P + 2C basis. This acquisition also provides us with greater influence over investment decisions on an asset which is expected to be an important part of the Jadestone investment case for years to come.”

Furthermore, the acquisition includes MIMI’s entire 16.67% working interest in the CWLH fields, subsea infrastructure, the FPSO Okha, and full abandonment liabilities. Jadestone will make payments of up to $111 million in connection with the acquisition, comprising a consideration of $9 million and up to $102 million into the CWLH abandonment trust fund in three installments in 2024. With this acquisition, the company is getting 11.8 mmbbls net, comprising 0.2 mmbbls of production since the effective date, 5.1 mmbbls of 2P reserves, and a further 6.5 mmbbls of 2C resources – both as of December 31, 2022.

Based on a consideration of $9 million, this represents a 2P acquisition cost of around $1.7/bbl and about $0.8/bbl on a 2P + 2C basis. Due to an effective date of July 1, 2022, any completion adjustments are anticipated to result in a payment to Jadestone in the range of $3-6 million on the closing of the acquisition, which is currently expected in 1Q 2024. This will be paid by MIMI into the CWLH abandonment trust fund, offsetting the first $42 million installment, which Jadestone will pay on the completion of the acquisition, by the same amount.

Moreover, Jadestone will make two further payments into the abandonment trust fund, including a payment of $23 million, payable on NOPTA’s approval and registration of transaction documents exchanged at completion, which is currently projected for March 2024; and up to $37 million at December 31, 2024. The company intends to make these payments, which are projected to broadly coincide with receipts from liftings attributable to MIMI’s interest, through available liquidity including corporate cash balances and, pending lender consent, available liquidity in its reserves-based lending (RBL) facility.

“Our RBL banks are supportive of this acquisition and recognize the benefits that it will bring to our business, further diversifying our production base and adding barrels which are accretive on all measures. Flaring from the CWLH fields is minimized due to the export of associated gas to the neighboring North West Shelf gas facilities, reducing emissions intensity and further evidencing how our strategy of maximizing recovery from existing upstream assets is consistent with our sustainability principles,” added Blakeley.

According to Jadestone, the CWLH fields produced approximately 2,200 bbls/d during 3Q 2023 and have averaged around 1,800 bbls/d year-to-date 2023 net to MIMI’s 16.67% interest. While the production has regularly exceeded 2,300 bbls/d net to Jadestone in recent months, year-to-date production was impacted by facility downtime earlier in 2023, with remediation plans to prevent similar occurrences already being implemented.

The oil production from the CWLH fields is low-sulphur and low-density and the next lifting allocated to MIMI’s interest is estimated at about 650,000 bbls. This is expected to occur in 1Q 2024. The firm highlights that the unit operating costs for MIMI’s interest are estimated at less than $25/bbl and will be accretive to the company’s overall current unit operating cost. There will be no incremental overhead to Jadestone for managing this interest.

The AIM-listed player continues to believe that there is potential to add incremental reserves through infill drilling, targeting unswept oil across all four of the CWLH fields, and extending the asset life beyond 2031, which is the initial design life of the FPSO Okha. As the CWLH joint venture partners have waived their pre-emption rights and given their in-principle consent to the acquisition – subject to agreement of the relevant accession documentation –  this reduces the conditionality of the transaction.

However, the completion of the acquisition is still subject to the satisfaction of customary closing conditions, including regulatory approvals from NOPTA and Australia’s Foreign Investment Review Board. Jadestone anticipates the completion of the transaction during the first quarter of 2024.