Timor-Leste – TL-SO-19-16 PSC
63.75% Indirect Interest
The TL-SO-19-16 Production Sharing Contract (“Chuditch PSC”) offshore Democratic Republic of Timor-Leste was awarded to a subsidiary of SundaGas in November 2019, as Operator. Baron initially held a 33.33% interest in the shares of SundaGas Timor-Leste (Sahul) Pte. Ltd. (“TLS”), the parent company of the Timor-Leste subsidiary holding the PSC interest, which equated to an indirect interest of 25% in the Chuditch PSC.
In April 2021, upon completion of an Earn In, Baron increased its interest in TLS to 85% (63.75% effective interest) by agreeing to fund the remainder of the estimated US$3.5m Chuditch work programme to November 2022, which includes the licensing and processing of 3D seismic data. As a result of the Earn In, Baron’s net share of the estimated aggregate Mean prospective resources for the PSC has risen to 2,248 BCF, equivalent to approximately 375 MMBOE.
TLS’s wholly owned subsidiary SundaGas Banda Unipessoal, Lda. (“SundaGas Banda”) holds a 75% interest in the Chuditch PSC, with the remaining 25% interest held by a subsidiary of the Timor-Leste state oil company Timor Gap, E.P., whose interest is carried by SundaGas Banda. SundaGas Banda has entered into an agreement with Spectrum Geo Australia Pty Ltd., a wholly owned subsidiary of TGS-NOPEC Geophysical Company ASA, for the licensing and reprocessing of the 3D seismic data.
We consider the Earn In to be timely in order to benefit from:
- an acceleration in Timor-Leste gas exploitation activity both regionally and locally, including plans for existing infrastructure to be extended;
- an increased exposure to the South-East Asian liquid natural gas (LNG) market where demand is forecast to exceed supply in the medium to long term;
- a low-cost means of securing a majority interest in a project that has a sufficient level of prospective resource to be of interest to major regional gas players and other potential funding partners;
- implementing the first step in the Board’s revised strategy, whereby the Company intends to acquire significant equity interests in opportunities for high potential impact oil and gas exploration and appraisal activity at low entry costs in established petroleum provinces.
The Chuditch PSC is located approximately 185km south of Timor-Leste, 100km east of the producing Bayu-Undan field, and 50km south of the planned Greater Sunrise development. It covers an area of approximately 3,571 km2, in water depths of 50-100m, and contains the Chuditch-1 gas discovery drilled by Shell in 1998. The well was drilled in 26 days at a cost of US$8 million and encountered a 25m gas column in the Jurassic Plover formation on the flank of a large faulted structure. Shell’s mapping of the then available 2D seismic data suggested that the greater Chuditch area may contain significant quantities of recoverable gas.
In February 2021, Baron announced that SundaGas Banda had been granted a 12-month extension to Contract Year 1 of the Chuditch PSC, to 8 November 2021, thereby extending the current initial 2 year phase of the PSC to November 2022. The extension will allow SundaGas Banda to complete the commitment technical work programme and so assess the viability of drilling an appraisal well and, potentially, further exploration wells in a timely manner.
The work programme for the current phase of the Chuditch PSC includes an obligation to reprocess a minimum of 800km2 of 3D and 2,000km of 2D seismic data. Subject to encouraging results from the reprocessing, the subsequent commitment is to drill a minimum of one well in the third and final year of the Initial Period of the PSC, effectively a ‘drill or drop’ decision to be made by November 2022.
In January 2021, Baron announced a significant upgrade in the gross estimated Mean Prospective Resources to 3,527 BCF. The prospective resource base within the Chuditch PSC licence area consists of the Chuditch-1 discovery, three adjacent prospects (Chuditch West, Chuditch South West and Chuditch North), and a previously unrecognised, significantly sized lead (Chuditch North East). There is technical evidence which may indicate that the mapped limits of the prospects and lead coincide with the gas water contact interpreted in the Chuditch-1 discovery, such that there is the potential for a single, large accumulation within the licence area. The seismic reprocessing work programme is aimed at confirming the structural configuration of the Chuditch discovery and adjacent prospects and lead prior to any drilling.
The other known significant gas accumulations in offshore Timor-Leste, Bayu-Undan and Greater Sunrise, both contain condensate in addition to gas. Baron believes that there is the, as yet unevaluated potential, for condensate in the Chuditch PSC licence.
We expect that the 3D seismic reprocessing work will deliver data seven to twelve months from commencement. Seismic data interpretation, geological and other studies will occur in parallel during this period. The results of the studies may have the potential to reclassify the resources in the Chuditch-1 discovery from Prospective to Contingent, as defined by the Society of Petroleum Engineers’ (“SPE”) Petroleum Resources Management System (“PRMS”).
The Board believes that the following events represent key potential value inflection points for the Chuditch PSC project:
- final results of seismic reprocessing anticipated in Q1 2022;
- the decision to enter into a drilling phase anticipated in Q4 2022;
- the potential drilling of a high impact appraisal and exploration programme anticipated in 2023.