Coro Energy – CFO Interview

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Coro Energy’s CFO Dennan discusses the firm’s movements and plans in SE Asia

This year has seen Coro Energy take major steps forward in its strategy to build a SE Asian portfolio of fields with associated exploration upside. Here, the company’s chief financial officer Andrew Dennan talks us through the firm’s recent acquisitions and its plans moving forward following its recent €22.5m Eurobond issue.

Eurobond issue

April saw Coro Energy take a significant step forward when it announced that it had completed the issue of €22.5m worth of three-year Eurobonds with warrants attached. These were issued in two tranches (A and B) and at 85pc of par value – resulting in cash proceeds of €19.1m. Tranche A bonds will pay an annual cash coupon while Tranche B instruments will accrue interest payable on redemption.

Critically, the issue was supported heavily by Coro’s institutional investor base. Indeed, the firm issued Lombard Odier AM – one of its most significant cornerstone investors and substantial shareholders – €11.25m of Tranche B Eurobonds. Another key backer called CIP Merchant Capital subscribed for €4.05m of Tranche A Eurobonds. Dennan tells us that combining Coro’s Eurobond issue with its -ultimately unsuccessful – bid for peer Ophir Energy earlier this year paints a true picture of the company’s strength and ambition

‘Thanks to the Eurobond issue we are well supported financially, and enjoy continued backing by very well capitalised and very visible cornerstone investors,’ he adds. While unsuccessful, our bid for Ophir enabled us to show to the market our level of ambition. We are a £50m market cap company that went for a $600m takeover approach – we are confident that we had the management experience and general expertise to justify this.’

Duyung programme

The proceeds of the Eurobond issue have been used principally to support Coro’s acquisition and contribution to a new asset called the Duyung Production Sharing Contract (PSC). The PSC is based in the West Natuna Basin, offshore Indonesia, near a critical pipeline called the West Natuna Transportation System. This gives the Duyung partners an opportunity to sell gas into the Singapore market, with a heads of agreement already signed with a local gas buyer.

Notably, the PSC contains the 350km2 Mako gas field, which has been ascribed gross 2C resources of 276 Bcf (48.78 MMboe) of recoverable dry gas with gross 3C resources of 392 Bcf (69.3 MMboe) representing additional field upside. Alongside this, Coro has identified exploration targets both above and beneath the field that represent even further upside potential. These include the Tambak prospect, a Lower Gabus structure that sits beneath Mako’s northern end and boasts mid-case prospective resource potential of c.250 Bcf alongside a chance of geological success (CoS) of 45pc. Meanwhile, the Mako Shallow prospect has a mid-case resource potential of 100 Bcf and a CoS of 75pc.

Following the Eurobond issue, Coro purchased a 15pc interest in the PSC for a cash and shares consideration of $4.8m. To earn its stake, the organisation also agreed to contribute $10.5m towards a drilling campaign at the asset this year.

In March, one month after the transaction was first announced, Coro revealed that its plan of development for Mako had been approved by the Minister of Energy and Mineral Resources. Then, in April, the business’s c.$17m drilling programme for the field was approved by the Duyung partners. This will involve the drilling of two wells- one exploration well designed to test the Tambak prospect and another well designed to appraise the intra-Mud sandstone reservoir in the southern area of Mako. The campaign is expected to start in September this year, with each well taking around 33 days to complete including testing.

Dennan tells us that the results of the drilling programme are expected in the second half of this year, adding that any success will be highly value accretive for an asset that already boasts a strong resource:

‘Both wells go into Mako, so they will not be dry holes and will give rise to very little additional cost because we are appraising the main field anyway. They are, however, new prospects, that could potentially increase the size of Mako’s resource by as much as 150pc in the success case. So this is a great opportunity for us to really increase the attractiveness of our asset without needing exposing yourself to extra expenditure or risk. The success we have will shape the way we take the asset forward, as well – discussions will obviously be very different depending on whether we are marketing a 276bcf field of a 600-700bcf field.’

Broader portfolio

Beyond the Duyung PSC, Dennan tells us that work is ongoing at Coro’s other assets in SE Asia. For example, the business is conducting a joint technical study over a Malaysian block called 2A with a firm called Petroleum Nasional Berhad, or Petronas. Block 2A is located in a deepwater area near the prolific Sarawak basin. Although it is yet to be drilled, work to date has identified numerous large structural closures at prospective levels consistent with nearby plays. Initially, the deal will allow Coro to conduct an extensive technical analysis of the block before giving it the option to apply for a production sharing contract, subject to approval from Petronas.

Dennan says Malaysia is seen as a jewel in the crown by many oil & gas countries, with numerous fields remaining unlicensed despite containing discovered resources: ‘Many of these are 20MMbbls discoveries, so they are too small for the huge companies but perfect for a business of our size. We are progressing alongside Petronas and have been vocal about our plans to extend our presence in the region.’

Finally, Coro owns a 42.5pc stake in the Bulu production sharing contract offshore East Java, which it purchased for $12m in cash and shares last September. It includes the Lengo gas field, which contains gross 2C resources of 359Bcf recoverable dry gas and total 3C resources of 420Bcf. It is expected to produce at a plateau rate of c.70MMscfd – 30MMscfd net to Coro – when it comes on stream.

Andrew Dennan CFO recently presented Coro Energy at shares magazine 

The author was remunerated but does not hold shares in the company