CBM Asia increases interest in Sekayu PSC

By Romel S. Gurky

CBM Asia said it has entered into a settlement deed to increase its participating interest in the Sekayu production sharing contract (PSC) for the 583.49 km2 Sekayu block in the South Sumatra Basin of Indonesia to 26 percent.

Currently, the Sekayu PSC is held 50 percent by a consortium of shareholders through South Sumatra Energy Inc. (SSE) and 50 percent by PT Medco CBM Sekayu, as operator.

Under its original letter of intent, CBM Asia acquired the right to earn, indirectly through SSE, a 12 percent participating interest in the Sekayu PSC (with the exclusive right to provide financing for up to an additional 12% participating interest) from certain arm?s length vendors in consideration for US$1 million cash, of which US$730,000 was paid on December 14, 2009, and exploration expenditures totaling US$3,243,500.

Under the terms of the deed, the vendors have agreed to relinquish and transfer all of their interest in SSE and the Sekayu PSC to the remaining shareholders of SSE including CBM Asia and Ephindo Sekayu CBM Inc. in exchange for, inter alia, CBM Asia paying the vendors the sum of C$75,000 in full and final settlement of the cash payment and assuming all of the vendors? obligations under the underlying participation agreement between the vendors and Ephindo.

Ephindo, in turn, will transfer all of its interest in SSE to CBM Asia in exchange for a direct 21.5 percent participating interest in the Sekayu PSC. Upon completion of the transactions contemplated in the deed, the Sekayu PSC will be beneficially owned as follows:

CBM Asia (indirectly through SSE): 26.0%
Ephindo: 21.5%
Far East Methane LLC (FEM): 2.5%
PT Medco CBM Sekayu: 50.0%
TOTAL: 100.0%

Pursuant to the participation agreement, CBM Asia will be responsible for funding all of Ephindo?s and FEM?s exploration expenditures under the Sekayu PSC up to the earn-in cap of US$8 million, of which US$6,422,938 had been incurred by the company and the vendors as of December 22, 2011.

Upon the company funding the remaining US$1,577,062 of the earn-in cap, each party will be responsible for paying its pro rata share of future exploration and other costs under the Sekayu PSC.

Certain transactions contemplated in the deed including the change in control of SSE to CBM Asia and the transfer of a direct 21.5 percent participating interest in the Sekayu PSC to Ephindo are subject to the approval of BP Migas, the Indonesian upstream oil and gas regulatory agency.

Editing by Reiner Simanjuntak