CBM Asia provides review of operations and financing update
Thursday, December 5 2013 - 12:36 AM WIB
Review of Operations. To date the Company and its operating partners have successfully drilled and tested a total of eight coalbed methane exploration wells at two Production Sharing Contract (PSC) areas in Indonesia. This resulted in 981 Bcf of recoverable prospective resources net to the Company.[1] Given the Company has raised a total of $34 million to date, this equates to overall finding costs of approximately $0.03/Mcf. The CBM gas sales price in Indonesia ranges from $7.50 to nearly $20/Mcf.
The Company?s first CBM test well, also Indonesia?s first CBM exploration well, was drilled in 2009 by operating partner Medco Energi at the Sekayu PSC in South Sumatra. Core recovery was poor due to mechanical problems. However, geophysical logs confirmed the presence of thick coals with strong gas kicks. After the well was drilled, coal seam permeability was successfully measured in-situ at 500 mD. In 2011 contractor Weatherford re-entered the well to conduct critical desorption tests, measuring methane saturation levels of up to 95%. Apart from the early coring mishap, this well provided a complete set of geologic data for resource evaluation.
The following seven wells drilled by the Company and its operating partners were operationally successful and provided complete geologic data for resource evaluation. Core recovery rates in the seven wells averaged over 90%. Gas content measured on the core ranged from 75 to 359 ft3/ton (dry, ash-free basis), much higher than at the analog Powder River Basin in the USA (current CBM production 830 million ft3/day). Most recently, 5-millidarcy permeability was measured in three coal seams at the KW-CBM-1 well, comparable to that of the USA Central Appalachian Basin where Consol Energy currently produces 240 million ft3/day.
Qualified Reserves Evaluator Netherland, Sewell and Associates, Inc. (NSAI) has independently evaluated these data and estimated 981 Bcf of recoverable prospective gas resources, net to the Company. NSAI has estimated the overall probability of commerciality at 50%. Subsequently, gas flow and permeability tests have been conducted further derisking the assets. The two blocks evaluated by NSAI represent just 6% of the Company?s total net acreage in Indonesia.
CBM gas prices in Indonesia range from $7.50/Mcf for local power generation at VICO?s Sanga-Sanga PSC to nearly $20/Mcf for gas exported from the Bontang LNG facility.[2] If the company is successful at producing and selling its 981 Bcf at these prices, gross revenues could range from $7.5 to nearly $20 billion.
During 2013 the Company made significant progress towards further expanding its resource base in Indonesia. After signing the JV umbrella agreement with ExxonMobil to farm into four PSC?s in the Barito Basin, the Company and ExxonMobil have jointly developed and submitted the detailed exploration plans required by regulator SKK Migas. To implement the planned 10-well Barito drilling program we increased our Jakarta staff to include local CBM-experienced geologists, engineers, and environmental specialists. The General Manager is our single expatriate employee. The increased staff and consulting expenses were reasonable and necessary given the magnitude of the Barito Basin, where CBM gas-in-place resources are estimated at 102 Tcf.[3] To minimize expenses management has returned over CAD525,000 in salaries and travel expenses into the company via the private placement. We employ two full-time staff at our Vancouver home office, the CFO and an accountant, and our overhead expenses remain low compared with peer E&P companies.
On the commercial side, the Company has been working towards establishing gas offtake agreements with multinational companies. We signed an agreement with Linde Group (market capitalization EUR27 billion) to jointly conduct a CBM-to-LNG supply study of up to 50 MMcf/d in the Barito Basin. We also signed a CBM-to-Power agreement for up to 5 million ft3/day with Navigat Energy, a leading Southeast Asia power project developer financed by General Electric and Standard Chartered bank. The quality of our production and offtake partners significantly enhances the Company?s ability to project finance future development and generate significant cash flow.
Barito Basin JV with ExxonMobil. CBM Asia has signed the Umbrella Agreement with ExxonMobil to farm into four CBM PSC?s in the Barito Basin. Both companies are engaged in amending certain terms of the agreement. The Company with approval from ExxonMobil will announce details in the near future.
Financing. In light of the difficult market conditions prevailing for most junior resources company the company reduced its private placement requirements to CAD5.0 million in July as a means to focus on a broader financial solution. As of today CBM Asia has been offered financing facilities of USD25 million and EUR60 million by two private institutions. The Company has been engaged with the two institutions for several months. Recent communications and exchange of term sheets indicate possible final decision by the Company to determine which institution to work with in December/January followed by immediate drawdown. (ends)