New development plan handed over for Indonesian project with first gas slated for 2025
The Duyung PSC partners have submitted an updated plan of development (PoD) to the Indonesian Ministry of Energy and Mineral Resources for a gas project located offshore Indonesia. This PoD foresees the first gas from this project in 2025.
Following the agreement on an updated plan of development and alignment with SKK Migas for the Mako gas project in the Riau Islands Province, in the West Natuna area of Indonesian waters, the PoD has been submitted to the Indonesian Ministry of Energy and Mineral Resources for approval, according to one of the partners in the Duyung PSC, Empyrean Energy. The firm revealed on Monday that a Competent Persons Report (CPR) was prepared by GaffneyCline & Associates (GCA) for the Mako development.
Tom Kelly, Empyrean CEO, remarked: “Empyrean would firstly like to thank the Conrad and SKK Migas teams for the enormous volume of work that has gone into achieving alignment with SKK Migas and the Duyung partners in order to submit the PoD for ministerial approval. This is a great achievement. The independent assessment of the project by Gaffney Cline shows that the project economics are highly robust.”
The operator of the Duyung PSC is WNEL, a 100 per cent subsidiary of Conrad Asia Energy, with a 76.5 per cent interest in the Duyung PSC, while Coro Energy and Empyrean hold 15 and 8.5 per cent, respectively. The Duyung PSC contains the Mako gas field, which was discovered by Conrad through the drilling of the Mako South-1 well in 2017. Subsequent appraisal drilling and testing of two wells (Tambak-1 and Tambak-2) in 2019 further delineated the gas field, resulting in the identification of additional gas resources.
Conrad is currently working with the Indonesian government to revise its PoD in order to accommodate greater gas volumes and attendant production rates. The company describes the Mako gas field as “one of the largest undeveloped gas discoveries in the West Natuna Sea with key under-utilised infrastructure in place.” The PoD for this field was approved in February 2019, converting the PSC from exploration to exploitation, and extending tenure to 2037.
WNEL has continued to “technically mature” the development of the Mako gas field alongside negotiations of GSA(s), both in preparation for a final investment decision (FID), as explained by Empyrean. The company elaborates that this process included finalising the revised PoD, on which the JV partners have now secured alignment with the governmental regulator, SKK Migas, and submission for ministerial approval.
Empyrean claims that the GCA CPR is closely aligned with the PoD and is premised on a two-phased development with six wells in phase 1 and a further two wells in phase 2 after five years of production. These wells will be tied back to a leased production platform at the field, with gas transported via the West Natuna Transportation System pipeline to Singapore for sales to the Singapore market.
Based on this development plan, the first gas is expected in 2025 with a 120 MMscf/d production plateau and a gross recoverable 2C contingent resource of 413 Bcf gas total and 281 Bcf net entitlement attributable to the Duyung PSC JV partners – 23.8 Bcf net to Empyrean – during the PSC life.
The CPR, dated 26 August 2022, and the PoD revision, specify that upside exists to increase the plateau rate to 150 MMscf/d, should reservoir deliverability be sufficient. In addition to the first gas being anticipated in 2025, the CPR and PoD calculate the last economic production years prior to the current Duyung PSC expiry date for low, best and high cases of 2033, 2036 and 2036 respectively, which extend to 2039 and 2054 for the best and high cases if the Duyung PSC is extended.
Furthermore, the CPR utilises a gas price of $9.97/Mscf in 2025, calculated on a Brent linked price formula with a Brent slope of 12 per cent and a Brent price deck of $80/bbl in 2025, escalating 2 per cent from 2027 thereafter. However, different gas prices may eventually be aranged with the gas buyers and the regulator when the GSAs are signed. Moreover, the CPR estimates that the post-tax NPV10 resulting from the best case contingent resources within the Duyung PSC acreage and within the life of Duyung PSC (363 Bcf) is some $578 million – $49 million net to Empyrean – representing a 51 per cent IRR.
Empyrean underlines that under the CPR and the revised PoD, the first gas from the Mako gas project is planned to be evacuated via the West Natuna Transportation System and the development will utilise a conductor support frame (CSF) for one dry wellhead and gas import-export support, bridged-linked to a leased mobile offshore production unit (MODU).
Taking this into account, the CPR Phase 1 capital expenditure is estimated to be $251 million while the total capital expenditure will be $303 million. However, these estimates will be updated as a consequence of envisaged front-end engineering and design (FEED) studies, as underscored by Empyrean. The company also says that RBL debt funding is anticipated to be appropriate to provide funds for the development.
“Empyrean is also encouraged by the significant upside that exists if the current macro environment of higher South East Asian gas prices results in any improvement on pricing assumptions contained in the CPR. There also exists a significant upside if the reservoir performs better than the 2C best case. We look forward to the conclusion of GSA negotiations,” concluded Kelly.