AWE Sells Stake In Indonesian AAL For $188 Million

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To buy a 50% interest in the Northwest Natuna PSC, which includes the Ande Ande Lumut oil project.

AWE Ltd. (ASX: AWE; OTC: AWWEF) signed a sale and purchase agreement to sell a 50% interest in the Northwest Natuna PSC, which includes the Ande Ande Lumut oil project, to a subsidiary of Santos Ltd. (ASX: STO) for US $188 million or AU $209 million, the company announced on Aug. 22.

The consideration comprises US $100 million in cash payable on completion of the sale and a US $88 million cost recoverable capital expenditure carry. As a condition of the sale, AWE will also transfer operatorship of the PSC to Santos effective on completion. The sale is subject to Indonesian regulatory approval of the transfer of a 50% interest in the PSC and operatorship from AWE to Santos.The sale will substantially strengthen AWE’s financial position and reduce its funding commitments for the project. Following completion, AWE will be in a net cash position with an undrawn AU $300 million debt facility. The sale is expected to generate an estimated unaudited after tax profit of AU $60 million.

AWE’s managing director, Bruce Clement, said that the successful sale highlighted the company’s value creation strategy and reflected the excellent work of AWE’s geoscience, engineering, project and commercial teams over the past 18 months.

“AWE acquired 100% of this asset in February 2012 for US $39 million plus US $100 million of debt. We identified an early stage project with significant upside potential and we immediately set about improving the reservoir mapping and modeling, drilling and completion design, and facilities design which has resulted in an optimised plan of development.

“Our teams in Sydney and Jakarta embarked on more than 12 months of comprehensive subsurface and facilities design work. Their clever and innovative solutions helped to significantly enhance the economic value of the project,” Clement said in the release.

AWE increased the estimated recoverable oil in the K-Sand reservoir from 76 million barrels to 101 million barrels (gross 2P Reserves), confirmed by an independent review, with an additional 35 million barrels (gross 2C Contingent Resources) assessed in the underlying G-Sand reservoir.

“By leveraging the technical and operating experience gained from Tui and other AWE projects, we improved the facilities design and we were able to reduce the number of wells from 43 to 33 and improve oil recovery by utilising longer reach horizontal wells. Similarly, the estimated initial production rate has the potential to increase well beyond the 25,000 barrels of oil per day in the original plan of development.

“We look forward to working with Santos on this important development project. Santos is a valued partner in the project who brings an established Operating capability in Indonesia and a track record of successfully developing other offshore fields in the region.

“The sale confirms AWE’s track record of successful acquisitions over the past few years, which includes 10% of the Sugarloaf shale gas acreage in the USA. The sale also underlines the success of our focused and disciplined Asian growth strateg y and we will continue to look for opportunities in the region,” he said in the release.

AWE is being advised by Credit Suisse (Australia) Ltd. as financial advisor and Baker & MacKenzie as legal advisor.

AWE Ltd. operates as an oil and gas E&P company in Australia, New Zealand, Indonesia, Yemen, and the U.S. the company is based in North Sydney, Australia.