Andalas signs agreement to farm-in to Indonesian gas project

By Romel S. Gurky

LSE-listed Andalas Energy and Power Plc (ADL) said on Wednesday that it has signed a non-binding heads of agreement to farm-in to the Technical Assistance Contract (TAC) covering the Tuba Obi East oil and gas concession (TOE) in Jambi province.

Under the terms of the proposed farm in, Andalas will acquire a 30 percent direct working interest in the concession through the execution of a single well work program.

The work program includes the completion of a geological, geophysical and reservoir study along with the drilling and flow testing of a single appraisal well to assess the deliverability, recoverable volumes, and gas quality in the Air Benakat formation. Block operator PT Akar Golindo and Andalas will jointly operate during the work program, which is expected to cost around US$1.075 million. Andalas has agreed to pay a further sum of $500,000 to PT Akar Golindo if the concession is renewed.

?A farm in to the TOE concession in Indonesia will give us a ?beach head? to build a significant gas business in the country. This is the result of many months? work during 2015 by our team and our extensive network of Indonesian gas and power industry experts. That work culminated in a comprehensive study of the Indonesian gas and power sector, from reservoir sand-face to gas burner tip, which I believe gives us a significant competitive advantage in realizing the value of TOE and future blocks currently under evaluation,? Andalas CEO, David Whitby in a statement.

He explained that TOE is ideally located adjacent to the major Sumatran gas pipeline to Duri and Singapore, and close to the provincial capital city of Jambi which is in critical need of power generation. ?We see great potential to add further value by expanding the concession to capture additional gas discoveries just outside the acreage.?

?In addition to providing Andalas with a clearly defined road map, today?s agreement also marks the beginning of the process for our shares to be readmitted to trading on AIM and I look forward to providing further updates on our progress,? he added, referring to London Stock Exchange?s Alternative Investment Market.

Whitby said that Andalas has assembled a top tier Indonesian drilling team that has commenced the well planning process to fast-track the spudding of the first well which will be a target following the company?s readmission to AIM.

Tuba Obi East has tested gas in the key South Sumatra hydrocarbon bearing formations, namely, the Air Benakat Formation (ABF) and the Talang Akar Formation (TAF). These zones have flowed gas to surface within and around the concession.

Crucially, the ABF has flowed gas outside the TAC but only limited data from the ABF has been gathered within the concession area. Andalas? technical analysis indicates that this reservoir zone contains potentially substantial gas resources that can be proven via the drilling and flow testing of the proposed appraisal well which may be completed as a production well on success.

Further geological, geophysical, reservoir and development studies will be undertaken following the analysis of test results from the well. This work will be conducted in parallel with a proactive approach to the renewal and extension of the block contract and preliminary discussions with targeted consumers.

During the last quarter of 2015 the Andalas team, supplemented by a number of Indonesian gas and power industry experts, completed a detailed study of the Indonesian gas and power sector with particular focus on the opportunities present in Sumatra. The results of the study are now being utilized as the ?road map? to guide the company?s future asset acquisition efforts.

The major conclusions of the study were:
? Indonesia is a demographically young nation with a rapidly growing middle-class supporting burgeoning demand for power
? Indonesia has one of the lowest electrification rates in the ASEAN region, with more than 60 million people estimated to be without access to electricity
? The Indonesian gas and power markets have robust, increasing demand, that is yet to be fully met
? Gas and power prices are some of the highest in the world and insulated from volatile oil prices
? Market fundamentals mean pricing is expected to remain high
? Demand growth and the international push for reduced carbon emissions favours growing use of gas in the power sector
? There is ready access to pipeline and power infrastructure, especially Sumatra
? TOE has potential for gas export or Independent Power Production (IPP) ? subject to proving gas volumes, deliverability, and quality.

?The study indicates that this concession and others currently under consideration are well situated to take advantage of the strong growth in the Indonesian gas and power sectors,? Andalas said.

Editing by Reiner Simanjuntak