Cue Energy reports Indonesian operations

The following is an edited excerpt from Australian energy firm Cue Energy Resources Limited annual report 2020 released on Monday.

Production

Sampang PSC, Offshore East Java

Cue Interest: 15% (Cue Sampang Pty Ltd)

Operator: Medco Energi Sampang Pty. Ltd.

Sampang revenue was in line with the previous year as gas production from Oyong and Wortel remained strong. The produced gas is sold on fixed price contracts which were not affected by the collapse of the global oil price during the second half of the year.

Overall, production was 9% lower than the previous year, although second half production was 11% higher than first half as the positive effects of the upgraded compression at the Grati Onshore Production Facility were realised.

The compressor installation was completed in late January 2020 on time and budget and is expected to extend the future productivity of the Oyong and Wortel fields by reducing the inlet pressure required at the onshore gas processing plant, allowing the wells to produce for longer.

During the second half of the year, the Indonesian Government introduced regulations to cap the price of gas sold by upstream producers to power generators and industrial users in Indonesia. The regulations include provisions that any loss of sales revenue to producers from lower sales price will be provided from the Government share of PSC revenue, so that producer revenue is not affected overall. These regulations are being implemented for all gas producers and will apply to a portion of Sampang production. No effect to Cue future revenue is expected from these new regulations. New developments, including Paus Biru, are not included in the Government pricing regulations.

The Plan of Development (POD) for the Paus Biru gas field, discovered in December 2018 by the Paus Biru-1 exploration well, was approved subsequent to the end of the year. The approved POD consists of a single horizontal development well with an unmanned wellhead platform (WHP), connected by a subsea pipeline to the existing WHP at the Oyong field, approximately 27km away.

From the Oyong WHP, gas from Paus Biru will be transported using the existing pipeline to the Grati Onshore Production Facility, which is operated by the Sampang PSC joint venture, where it will be processed.

The joint venture will now proceed into the Front End Engineering and Design (FEED) phase and negotiation of gas sales agreements. A Final Investment Decision (FID) for the development is expected to be taken by the joint venture mid 2021, with first gas expected late 2022.

The Sampang PSC is not being significantly affected by the ongoing COVID-19 situation in Indonesia. The Operator has an COVID-19 plan in place to manage the health and safety of staff and minimise the risk of disruptions to the operations.

 

Exploration

Mahato PSC, Central Sumatra Basin

Cue Interest: 12.5% (Cue Mahato Pty Ltd)

Operator: Texcal Mahato EP Ltd

Two exploration wells were drilled in the Mahato PSC during the year, resulting in the announcement of a 61.8 mmbbl OOIP discovery at the PB field, by SKK Migas, the Indonesian Regulator, on 16 April 2020.

The PB-1 exploration well commenced on 19 November 2019, targeting the Early Miocene Bekasap sands, with a secondary target, the overlying Telisa sands. Cue announced on 10 December 2019, that the PB-1 well was drilled to total depth and cased. Cue was issued a default notice by the Operator, Texcal Mahato EP Ltd (Texcal), referencing a deficient cash call which was not settled by Cue. Cue stopped receiving full information from the operator around the time of this notice.

On 17 December 2019 Cue announced that the cash call, which was not material, and was the subject of the default notice referred to in the ASX announcement of 10 December, had been paid. Texcal, and other joint venture participants, are continuing their claim to have excluded Cue from participation in operations at the PB prospect, based on the issued default notice and claimed decisions made around the time. These claims are rejected by Cue as having no basis under the Joint Operating Agreement (JOA).

Cue is not receiving information from the Operator as required under the JOA, in order to be able to fully assess the announcement by SKKMigas or the status of current operations.

During the second half of the year, Texcal refused to refund Cue’s share of the PSC performance bond, amounting to approximately US$268,750 which was released by the Indonesian Government on completion of the PSC work commitment. The return of the bond is governed by a separate agreement with Texcal and is unrelated to the claims being made by Texcal under the JOA.

Cue has Indonesian legal representation and continues to assert all its legal rights under the JOA and the agreement which governs the performance bond.

 

Mahakam Hilir PSC, East Kalimantan

Cue Interest: 100% (Cue Mahakam Hilir Pty Ltd and Cue Kalimantan Pte Ltd)

Operator: Cue Kalimantan Pte Ltd

The Mahakam Hilir PSC contains the Naga Utara prospect and the Naga Utara-4 appraisal well opportunity.

During the year, planning for the drilling of the well and discussions with potential farm-in partners were progressed.

With the implementation of COVID-19 restrictions in Indonesia during the second half of the year, planning and execution of drilling operations was delayed indefinitely, and Cue initiated discussions with the regulator to work out a practical way forward.

An extension to the exploration period of the PSC was granted by the Indonesian regulator, extending the end date from May 2020 to April 2021. As part of the extension, a condition was placed on the PSC restricting title transfers during the extension period.

Cue was in discussions with a potential partner prior to the extension grant and is assessing the impact of the title transfer restriction and continuing COVID-19 situation on any future dealings and activities. (end of excerpt)