Range Resources acquires interest in Perlak oil field

By Romel S. Gurky

US firm Range Resources Limited announced Tuesday that its wholly-owned Hong Kong-registered subsidiary Range Resources HK Limited has signed a sale and purchase agreement (SPA) with PT Hengtai Weiye Oil and Gas (Hengtai) to acquire a 23 percent interest in the Perlak oil field in Aceh Province for a consideration of US$3.2 million.

Range said in a statement its interest will increase to 42 percent upon completion of the minimum work program.

The company said that the Perlak field has a long history of oil production of approximately 60 million barrels (mmbbls). ?Range estimates material remaining oil in place of up to 500 mmbbls (this figure covers all reserve and resource categories), which demonstrates the high prospectivity of the field and substantial reserves and resources growth potential,? the company said in the statement.

The low risk low cost work program is aimed at re-initiating production from the existing wells, firming up the field development plan (FDP), and fully exploiting the potential resources, the statement said.

Range said that aside from the low acquisition cost, payable in tranches, the company is also protected against underperformance of the project via a put option which allows Range to sell its shares to the vendor at full investment cost. It added that the current license over the Perlak field will only expire on March 31, 2032.

Commenting on the acquisition, Chairman, Kerry Gu said: "We are extremely pleased with the investment in this established oilfield with a long history of production. The low acquisition cost, minimal work program commitment and protection from underperformance present a very attractive opportunity for the company to expand its footprint and potentially grow its reserves base.?

Range said the Perlak field is located in an established hydrocarbon province of Aceh, Northeast Sumatran basin and covers an area of 10.4 km2. The field is one of the oldest producing oilfields in the world, first discovered in 1899. It lies on-trend with many producing hydrocarbon fields, including the giant Arun field.

The Perlak field was produced primarily in the period up to the early 1940s from the crestal part of the structure (the developed area). Over 300 wells have been drilled to date, with 250 of those put into production. The field has produced approximately 59 mmbbl to date from very shallow depths of less than 1,000 meters (3,300 feet). The oil is very light with average API of 45-50 degrees. The average recovery factor of the developed area to date is estimated at 36 percent.

The field was shut-in during World War II and there has been limited activity carried out since that time, mainly by smaller local operators. Eleven wells had been drilled on the field since 1970s. Two of the more recent wells drilled in 2011 were put into production of 180 and 100 bopd, respectively, producing very light high quality oil 53 degrees API.

?The mature operating environment offers low cost development opportunities of the field with potentially short lead times to production. In addition, the company believes that substantial potential exists in the areas of the field that have not yet been developed,? Range said.

The field benefits from 2D and 3D seismic which has been obtained by previous operators and will be evaluated as part of the upcoming work program, it added.

The agreed minimum work program (MWO) covers a 3-year period from the date of license award, and involves geological and geophysical studies, workovers of existing wells, and drilling of one well. Range said it has identified four low-cost workover opportunities of existing wells. The company estimates that these wells will add over 120 bopd of production once brought online. The company said it will be evaluating the potential to expand its workover program beyond these four wells and expediting its work program.

Range said the overall objective of the work program is to firm up an FDP, in order to produce additional reserves across the field and fully exploit the potential resources.

Range's share of the cost of the MWO is $2.28 million. The field will be operated by a local company called PT Aceh Timur Kawai Energi.

Key terms of the SPA
? Range Resources HK limited, a wholly owned subsidiary of Range Resources Limited registered in Hong Kong has entered into a binding SPA to acquire 60 percent interest in Hengtai, Indonesia-registered company, which provides Range with 23 percent indirect interest in the Perlak field.
? Consideration of $3.2 million will be payable in cash in the following tranches:
a) $640,000 upon signing of the SPA;
b) $960,000 upon completion;
c) $960,000 upon the establishment of a service company; and
d) $640,000 upon completion of the MWO.
? Range is required to provide its share of the bank guarantee to Pertamina (Indonesian state-owned oil and natural gas corporation), net $0.9 million to Range;
? Once the minimum work program has been completed, Range's indirect interest in the Perlak field will increase to 42 percent;
? Completion of the transaction is conditional upon approval from the Indonesian Investment Coordinating Board (BKPM), and completion of statutory notification requirements; and
? Range has the right to appoint one director, two commissioners to the Board of Hengtai, as well as a financial controller.

Range and the vendor are intending to establish a services company in Indonesia to provide oilfield services to the oil and gas industry (including potentially the Perlak field). About 30 percent of consideration is payable once this company has been established (as stated above).

As part of the SPA, the vendor has agreed to provide Range with a put option, whereby Range has the option to enforce a buyback of its full 60 percent interest in Hengtai should the agreed milestones not be achieved, therefore providing protection to Range's investment. These milestones, amongst others, include achieving minimum production of 800 bopd from Perlak field over a continuous 90-day period, as well as proving up independently audited 1P reserves of at least 10 mmbbl within a three-year period.

Editing by Reiner Simanjuntak