Cue reinstates interest in Jeruk oil discovery

Australian oil company Cue Energy Limited said Friday that it had reinstated its 15 percent interest in the Jeruk Oil discovery in the Sampang Production Sharing Contract, offshore East Java.

?Cue?s option to reinstate its rights was triggered by Santos? proposal to further appraise the Jeruk discovery. Santos plans to reenter the Jeruk -2 well and to further sidetrack, core and production test the well, beginning in mid May 2005,? Cue said in a statement to the Australian Stock Exchange.

Cue said Santos also proposed to drill four appraisal wells beginning in around October 2005, at which time the 3D seismic data, which is currently being acquired, should be available.

According to the statement, Cue's share of the Jeruk -2 sidetrack, coring and testing is expected to be approximately A$3 million and its share of the proposed four wells is estimated to be approximately A$14.5 million.

Sampang Block is operated by Australian firm Santos Limited with a 45 percent working interest, while American firm El Paso (recently acquired by Singapore Petroleum Company) and Cue hold 40 percent and 15 percent, respectively.

Cue and El Paso have decided not to participate in the drilling of both the Jeruk-1 and Jeruk-2 wells, leaving Santos (Sampang) Pty Ltd to shoulder the risks and costs by itself. Later, Santos clinched a deal with Indonesian firm PT Medco Energi Internasional Tbk for a 50:50 joint venture to explore both wells.

Santos recently announced the discovery of oil Jeruk-2 well, which flow at 7,488 barrels per day during tests.

"Cue views Indonesia and the Sampang PSC as a core value contributor. With Oyong first production in 2005, Jeruk appraisal wells and further exploration including possible Oyong exploration look alike wells, Indonesia will deliver significant value to Cue shareholders," Cue said.

By reinstating its rights Cue is obligated to pay in cash a lump sum amount of approximately US $9 million (A$11 million) which is equivalent to the cost it would have incurred if it had participated in the Jeruk -1 and -2 wells. The lump sum is required to be paid by 29 May 2005. In addition, Cue will be required to pay a penalty out of oil production.

"Cue has sufficient cash funds on hand to pay the lump sum, and Jeruk -2 sidetrack coring and testing costs," Cue added.(Robert)