Lion Energy Moves into Indonesia’s Unconventional Oil, Gas Industry

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Australia’s Lion Energy Limited (Lion) announced Tuesday that it has successfully completed a concurrent series of transactions to reposition the company as an early mover in the Indonesian unconventional oil and gas industry, augmented by two Indonesian conventional production sharing agreements (PSCs).

Lion also welcomes two new Indonesian strategic investors and a new leadership team with extensive experience in the Indonesian oil and gas industry. Shareholders at a meeting in Perth Dec. 12, 2013 overwhelmingly approved the transactions. The Australian Securities Exchange (ASX) has formally approved the relisting of Lion shares, with trading to recommence Jan. 22. Lion has raised $8.36 million or AUD 9.5 million (before costs) and has also converted a $1.32 million (AUD $1.5 million) convertible note into ordinary equity.

Lion’s Portfolio Now Comprises:

  • a 2.5 percent interest in the producing Seram PSC
  • 35 percent equity in the South Block A PSC exploration in the heart of the North Sumatra Basin; and
  • four Unconventional Joint Study applications covering more than 6,563 square miles (17,000 square kilometers) in Sumatra

Under the new portfolio Lion emerges strongly as a pioneer in Indonesia’s emerging unconventional (shale gas/oil, tight gas/oil) business while simultaneously developing exciting, complementary conventional oil and gas production and exploration assets.

“The strong investor support that we have received will underpin the new recapitalized, reskilled and repositioned Lion Energy well into the future,” said Lion’s Executive Chairman, Russell Brimage. “We have a combination of deep experience, highly prospective assets and the requisite exploration and technical development capabilities.”

Assets

Seram PSC

Lion, via its wholly owned subsidiary, Lion International Investment Limited, holds a 2.5 percent participating interest in the conventional Seram PSC. The joint venture parties are CITIC Seram Energy Ltd (51 percent interest) and operator, KUFPEC (Indonesia) Ltd (30 percent interest) and Gulf Petroleum Investment Company (16.5 percent interest).

 

The PSC covering an area of 588 square miles (1,524 square kilometers) is located in an onshore, frontier setting on the island of Seram in eastern Indonesia. It contains the Oseil oilfield and surrounding satellite fields that are currently producing approximately 2,400 barrels of crude oil per day (Lion’s 2.5 percent share being 60 bopd). The Seram Project partners are undertaking a development drilling program designed to expand existing production and in 2014, a keenly awaited appraisal of the exciting 2012 Lofin-1 discovery is planned.

South Block A PSC

Lion, via its wholly owned subsidiary KRX SBA Pte Ltd, holds a 35 percent participating interest in the SBA PSC. Other participants are PSC operator RENCO Elang Energy Pte Ltd (51 percent interest), and PT Prosys Oil & Gas International (14 percent interest).

The underexplored block is centrally located in the prolific North Sumatra Basin and consists of western Area 1, that covers an area of 485 square miles (1,256.5 square kilometers), and Area 2 to the east covering 245 square miles (637 square kilometers).

Lion’s technical interest in South Block A is driven by:

  • the presence of large structures and attractive gas and oil plays which are currently being targeted by the joint venture with a new 105 mile (170 skilometer) 2D seismic survey
  • recent significant drilling success in nearby areas
  • a ready gas market and existing infrastructure with the new Arun-Medan pipeline traversing the block and linking to growth markets; and
  • the unconventional potential of the acreage

Unconventional Joint Study Applications

Lion has submitted Joint Study Applications for potential oil and gas unconventional areas in onshore Indonesia covering a total area of circa 6,563 square miles (17,000 square kilometers). Lion’s initial technical assessment has identified potential of multi-trillion cubic feet (Tcf) scale gas and multi-hundred million barrels of oil in the areas of the applications.

The emerging interest in Indonesia’s unconventional shale oil and shale gas follows on from the significant CBM activity in recent years. The Indonesian Government has actively promoted CBM investment since 2006 and has enacted legislation facilitating the development of unconventional oil and gas by providing procedures for the award of unconventional oil and gas working areas. This resulted in the award of 54 CBM PSCs from 2008 to 2013. Under these procedures, entities may make applications to the Indonesian Government for areas to study the unconventional potential. Each application may cover an area of up to 1,930 square miles (5,000 square kilometers), which can lead to award of an unconventional PSC across an area of up to 1,158 square miles (3,000 square kilometers).

Capital Raising and Use of Funds

Lion has raised a total of $8.36 million or AUD 9.5 million (before costs) with $6.6 million (AUD 7.5 million) of this coming from Risco and Tower and $1.76 million (AUD 2 million) from the Public Offer (of which $718,516 or AUD 816,125 was taken up by Risco). Shares for the Public Offer were issued Jan. 16. Lion’s securities will be reinstated to official quotation on the ASX at the commencement of normal trading Jan. 22.

The $8.36 million (AUD 9.5 million) raised will help to fund an active 2014 exploration schedule including:

  • completion of South Block A seismic
  • drilling of South Block A exploration well
  • drilling in Seram PSC with the large upside Lofin 2 appraisal well and additional development wells
  • conducting up to four Unconventional Joint Studies; and
  • conducting new business activities in Indonesia

New Leadership Team

The transactions essentially comprise the merger of four companies with complementary interests and strengths:

  • Lion’s existing Indonesian presence including oil production from the Seram PSC
  • Risco Energy Investments’ financial, technical and transactional expertise
  • Tower Energy’s relationships and experience in Indonesians unconventional business via coalbed methane (CBM); and
  • KRX Energy’s technical skills and existing South Block A PSC exploration asset

Lion’s senior management team of directors and advisors now includes a combination of experience selected from Risco, Tower and KRX executives: Russell Brimage, Kim Morrison, Chris Newton, Tom Soulsby, Roger Whyte, and Sammy Hamzah.

The team members have impressive track records in creating value in Indonesia’s oil and gas business. Additional background information is provided on the Lion website.

New Strategic Partners

Risco is a private energy investment company registered in Singapore whose founders and management have a strong track record in South-east Asia energy investments, particularly Indonesia. This experience covers management, operational, financial and technical roles in both the listed and unlisted environments. Established in June 2010, Risco has an experienced and competent management team housing more than 150 years of collective practice, with skill sets spanning technical, commercial, transactional and financial markets in an oil and gas context.

 

In 2013, the team achieved significant value creation and subsequent monetisation of its first South East Asian oil and gas conventional and unconventional portfolio. In addition to its proven track record, Risco’s management team has strong ties to Asia Pacific capital markets to support its activities in the region. Risco is the largest capital contributor committing $6.99 million (AUD 7.94 million) to the Lion recapitalization transactions.

Tower is an investment holding company founded in 2012 by Sammy Hamzah to pursue early entry into unconventional exploration (non-CBM) opportunities in Indonesia. Hamzah is one of the pioneers of the Indonesian unconventional oil and gas industry and has more than 20 years of general management experience. He was the former senior vice president of Unocal Indonesia Company (now Chevron Indonesia Company) in Indonesia, and is the founding shareholder and CEO of Ephindo Energy Private Ltd, Indonesia’s leading first-mover CBM company. Tower is providing $1.64 million (AUD1.87 million) to Lion as part of the Lion recapitalization transactions.

 

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