Coro Energy Plc
By Holly Black
Independent gas explorer Coro Energy has set out its stall with the announcement of its first deal. The firm has revealed the acquisition of a 42.5 percent stake in a gas field in Indonesia.
This is already undoubtedly a transformative year for the business, which has undergone a name change as well as bringing in a new chief executive officer in the form of James Menzies, bringing with him a wealth of knowledge in the South East Asia region that Coro is targeting.
This latest development sees Coro acquire a 42.5 percent stake in the Lengo field offshore of East Java, the largest island in Indonesia. Plans for development have been approved and local buyers have been identified, with an MOU already signed with a buyer earlier this year.
Crucially, the acquisition significantly enhances Coro’s capacity – currently around 32 billion cubic feet equivalent (Bcf), the Lengo field will add a further 152 Bcf to its capabilities – an uplift of almost 500 percent.
Menzies says: ‘This is our maiden deal in the region and we needed to be sure it was the right one strategically. This is a gas field that is well-known and understood, that has already been appraised and tested and that means the downside is pretty limited.’
When investors talk about the booms and busts of the commodity world it’s usually oil that gets the lion’s share of attention. But natural gas is an increasingly important player in this market, already providing around 22 percent of the energy used worldwide.
Its growing importance is evident in the recovery of its price – natural gas has almost doubled since its nadir in 2016 and, as sentiment towards commodities continues to thaw, many investors only expect that upward trajectory to continue.
Emerging markets and particularly those in South East Asia will be crucial to this ongoing recovery. Markets such as Malaysia and Indonesia have fast-growing economies and young populations which are becoming increasingly wealthy, and that’s an attractive backdrop for an energy exploration business.
The influence of China in this region is hugely important too; it’s long been a major exporter of coal from the surrounding areas, which means its neighbours are more reliant on other sources of energy.
Menzies says: ‘We are at the point where the region has not seen much investment in recent years but, now the oil price is coming back, people are starting to wake up to its potential. There are more deals to be done.’
Indonesia is a vast country and its make-up – a series of thousands of islands – means that there is no infrastructure across the breadth of it. This creates pockets of demand for energy which need to be satisfied locally both for domestic and business use. And while coal has historically been a leading source of power, gas is fast replacing it, particularly as a more environmentally friendly option.
Yet South East Asia has often been seen as a step too far; people have not understood how business is done in the region and it was seen as geographically and politically risky. That creates a huge opportunity for those who do have expertise in the area. Menzies says: ‘Companies like Coro have the technical and commercial skills to fill this niche.’
The Lengo field was discovered in 2008, successfully appraised in 2013 and independently certified to contain 359 Bcf of recoverable dry gas, as well as the potential for more. A development plan for the project was approved in 2014.
Costs so far have run to $100 million (£76.8 million) and Coro expects to benefit from the recovery of this outlay through production revenues. The level of impurities is relatively low for the area and, it is thought, will not impact the marketability of the gas recovered from the field.
Menzies says: ‘This is a good quality, low-cost acquisition and there is a lot of potential upside in terms of what we can get out of this field too.’ He adds that the site is a good size, being large enough to deliver meaningful results but not being so big as to be unmanageable.
Coro will pay current owner AWE around $8 million (£6.15 million) in cash for the asset and Singaporean company HyOil up to $4 million (£3.1 million) in shares. The total value of the deal – just shy of $11 million, or £8.45 million, is the equivalent of around 10 cents per MMBtu of the resource. That means there’s significant scope for profit, with gas prices in the region currently in the range of between $5.50 and $8 (£4.23 and £6.15) per MMBtu.
The remainder of the site will be owned by Kris Energy, which also has a 42.5 percent stake, and local partners Satria Energindo and Satria Wijaya Kusuma, which own 10 percent and 5 percent of the field respectively.
Menzies says: ‘This is our debut deal and it’s important to get it right. This is the right asset for Coro – it’s strategic, it’s a new market for the company but one we know well at the board, and it’s an opportunity that suits an independent exploration company. But this isn’t going to be a one-off, it is step one of many.’
Holly Black: is an adept interviewer, news and features writer, having written for various trade and consumer titles, with plenty of broadcast experience too. she was named Investment Journalist of the Year, Newcomer of the Year and Rising Star of the Year at the Santander Media Awards and Headline Money Awards.
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Watch CEO James Menzies update Jeremy Naylor at IG TV below