REG - Baron Oil PLC - MOU signed for Chuditch Farm-Up with Timor Gap

Baron OilAnnouncement

18/12/2023 07:00

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RNS Number : 0674X  Baron Oil PLC  18 December 2023

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF REGULATION
11 OF THE MARKET ABUSE (AMENDMENT) (EU EXIT) REGULATIONS 2019/310

 

18 December 2023

Baron Oil Plc

("Baron", or the "Company")

 Memorandum of Understanding signed for Chuditch Farm-Up with Timor Gap

Baron Oil Plc (AIM: BOIL) is pleased to announce a proposed assignment (the
"Farm-Up") of a 15% working interest in the TL-SO-19-16 Production Sharing
Contract (the "Chuditch PSC" or the "PSC"), offshore Democratic Republic of
Timor-Leste to TIMOR GAP Chuditch Unipessoal Lda. ("TIMOR GAP"), the existing
Joint Venture partner on the PSC and a wholly owned subsidiary of TIMOR GAP
E.P. the Timor-Leste National Oil and Gas Company.

Baron's wholly owned subsidiary, SundaGas Banda Unipessoal Lda. ("SundaGas")
has entered into a Memorandum of Understanding (the "MOU") with TIMOR GAP,
which details the proposed Farm-Up. The terms of the MOU constitute a binding
obligation on the Parties to enter into the Farm-Up, subject to and
conditional on the satisfaction of two Conditions Precedent, as described
below.

The Directors consider that the Farm-Up by TIMOR GAP will have a value to
Baron of approximately US$8.5 million in reimbursement for prior costs and in
the offset of future spend. Furthermore, the Directors believe that the
Timor-Leste Government's validation and commitment will both support and
progress our preparations for the planned Chuditch-2 appraisal well as well as
advance our financing plans for Chuditch-2, where discussions continue with
other potential funding partners.

The Proposed Farm-Up

Pursuant to the MOU, on completion of the Farm-Up ("Completion"), SundaGas,
will retain operatorship and hold a 60% working interest in the Chuditch PSC,
while TIMOR GAP will have a 40% interest, made up of a new paying 15%
interest, plus its original 25% interest which is carried to first gas.
Therefore, from Completion, TIMOR GAP will be responsible for paying 20% of
all costs, including the drilling of the planned Chuditch-2 appraisal well. In
2024, this contribution is estimated to be around US$7.5 million.

Under the MOU, on Completion SundaGas will also receive cash payments from
TIMOR GAP which are estimated to be approximately US$1 million relating to
back costs covering the period from the signing of the PSC to the anticipated
date of Completion.

The Farm-Up Agreements will be subject to two conditions precedent
("Conditions Precedent") of (i) approval of the Farm-Up by the Board of
Directors of TIMOR GAP E.P. and (ii) approval of the Farm-Up by Timor-Leste's
National Petroleum Authority (Autoridade Nacional do Petróleo or "ANP").

The transfer of the 15% working interest from SundaGas to TIMOR GAP will not
occur until the Farm-Up Agreements have been executed and the Conditions
Precedent have been fulfilled.

The MOU is governed by the laws of Timor-Leste.

The MOU shall terminate with immediate effect on the execution of the Farm-Up
Agreements or midnight on 31 January 2024 (whichever is the earlier to occur),
unless extended by the parties.

Transaction and Timing

The Directors anticipate that the Farm-Up should be a more straightforward
transaction than a farm-in from external partners, given that TIMOR GAP is
already party to the PSC and its Joint Operating Agreement and Baron has a
good working relationship with the various Timor-Leste petroleum authorities,
all of whom are supportive and have been involved in the Farm-Up discussions.
In addition, as TIMOR GAP already has full access to all PSC documentation and
data applicable, it is not expected that there will be a requirement for
significant additional due diligence in relation to the Farm-Up.

The operational plan remains to drill and flow test the Chuditch-2 appraisal
well in late 2024, subject to rig and drilling services availability and the
completion of drill financing.

Planning for Chuditch-2 Appraisal Drilling

As the Company highlighted in its announcements of 11 October 2023 and 30
November 2023, a location has been selected for the drilling of the Chuditch-2
appraisal well and significant progress has been made in preparation for the
drilling campaign.

Subsequent to those announcements, a further drilling planning workshop has
been held with ANP and SundaGas continues to develop its full operational
plans. The cost of the Chuditch-2 appraisal well is anticipated to be
approximately US$32 million, including the costs of a full production flow
test. The updated well cost is based on up-to-date market intelligence on
contractual rates for drilling rigs, logistics, fuel, testing equipment and
all services and personnel requirements for the execution of the appraisal
campaign. It also includes mobilisation and demobilisation costs for the rig
and equipment. The previously indicated drilling cost estimate of US$24
million was prepared in late 2021, prior to recent inflationary pressures and
in a looser market for drilling services in the region. Earlier indications of
costing also excluded mobilisation and certain other costs.

With TIMOR GAP's commitment via the MOU for the Farm-Up, SundaGas will seek to
advance discussions and assessments of suitable rigs, equipment and personnel.
On entry into Contract Year 3 of the PSC, the commitment will be to drill an
appraisal well within a 12-month period.

Rui Maria Alves Soares, President and CEO of TIMOR GAP, E.P. commented:

"I am pleased that TIMOR GAP is able to deepen its involvement in PSC
TL-SO-19-16 in close collaboration with our partner SundaGas. All the
technical efforts to date are encouraging for successful appraisal drilling of
the Chuditch field and for the exciting potential to come from the adjacent
exploration prospects. As partner, we support SundaGas in moving ahead with
the appraisal well and will take part in the necessary services that TIMOR GAP
can offer during the drilling campaign as well as encouraging participation of
other local service providers throughout operations in the Chuditch PSC. We
look forward to developing our strong partnership as we mature the Chuditch
gas resources for the benefit of Timor-Leste."

Andy Yeo, Chief Executive of Baron Oil Plc, added:

"We are delighted with, and greatly appreciate, TIMOR GAP's decision to
increase its participation in the Chuditch PSC through a paying interest. The
proposed Farm-Up is a major step forward, as it provides validation of the
project as well as bringing in an early funding partner for the appraisal
programme. It also reflects the Timor-Leste Government's commitment to the
development of the country's petroleum resources and its support for our
efforts.

"From here, we will advance our drilling planning for the appraisal well which
will include discussions with other potential funding partners. With this
proposed Farm-Up, we move a long way forward towards drilling Chuditch-2,
whilst retaining operatorship and a majority interest in the PSC."

 

For further information, please
contact:

Baron Oil
Plc
+44 (0) 20 7117 2849

Andy Yeo, Chief Executive

 

Allenby Capital
Limited                                +44 (0)
20 3328 5656

Nominated Adviser and Joint Broker

Alex Brearley, Nick Harriss, George Payne (Corporate Finance)

Kelly Gardiner, Stefano Aquilino (Sales and Corporate Broking)

 

Cavendish Capital Markets Limited             +44 (0) 131 220 6939
/ +44 (0) 207 397 8900

Joint Broker

Neil McDonald, Pearl Kellie (Corporate Finance)

Leif Powis (Sales)

 

IFC Advisory
Limited
+44 (0) 20 3934 6630

Financial PR and
IR
baronoil@investor-focus.co.uk

Tim Metcalfe, Florence Chandler

 

 

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