1 September 2016
Andalas Energy and Power Plc
(‘Andalas’ or the ‘Company’)
Partners with Indonesian National Oil Company to Monetise Multiple Gas Fields
Andalas Energy and Power Plc, the AIM listed Indonesian focused upstream oil and gas and power company (AIM: ADL), has signed an agreement (the ‘Agreement’) with PT Pertamina (Persero) (‘Pertamina’) to establish a joint working and steering committee with the objective to fast-track commercialisation of marginal gas fields within Pertamina’s acreage in Indonesia. The execution of this Agreement represents substantial progress by Andalas in the implementation of its gas-to-power strategy with a world-class partner. Pertamina, listed in the global Fortune 500, is Indonesia’s national energy company and holds an unrivalled position within the country’s energy industry.
This Agreement is in line with Andalas’ plan to utilise its team’s expertise and local knowledge to make a significant contribution at the local level towards fulfilling the Government of Indonesia’s goal of reducing the country’s power shortfall. Indonesia is seeking to increase electricity capacity by 35,000 Megawatts (‘MW’) by 2019.
- Agreement recognises that Pertamina and Andalas’ personnel have a proven track record in monetising gas fields in Indonesia;
- Initial focus is to identify at least five stranded gas fields within Pertamina’s acreage in Riau, Jambi and South Sumatra provinces which are suitable for sub-100 MW gas-to-power development in the form of an independent power project (‘IPP’);
- All target areas have an abundance of stranded gas fields that ADL has identified;
- All field and IPP development plans will be based on modular/mobile power plants (‘MPPs’), a proven technology that is cost-effective, flexible, scalable and ideal for satisfying power demand at the local level in a wide range of operating environments;
- Once the initial five fields have been identified both parties will sign an exclusive joint development agreement (‘JDA’) to design, construct, fund and operate the IPPs - suitable partners may be invited to join Pertamina and Andalas in the JDA for each development; and
- Both parties will work together to generate IPP commercialisation plans for each of the identified marginal gas fields covering all key aspects of any future investment and approval; covering project design, project cost and economic analysis and all regulatory requirements.
Andalas CEO, David Whitby, said: “Working in partnership with Pertamina, the Indonesian national energy company, is in our view a testament to the strength of Andalas’ gas-to-power business concept and the calibre of both our Board and local management team, who have an intimate understanding of the country’s energy sector. Andalas already has the team and network to make sure the partnership has at its disposal everything needed to deliver the targeted IPP commercialisation plans.
“Pertamina holds an unrivalled position and has in-depth knowledge of Indonesia’s oil and gas sector, as well as a substantial portfolio of stranded gas discoveries in South Sumatra where there is a major need for power. The Andalas team has a significant track record in monetising gas assets in Indonesia since 1990. Together Pertamina and Andalas are uniquely positioned to make a significant contribution to Indonesia’s economic growth by helping to meet the country’s growing demand for electricity at both the industrial and household level.
“Together with our ongoing initiatives at TOE, this Agreement with Pertamina promises to fast track our strategy to build an integrated gas-to-power producer with a portfolio of interests which have the potential to generate significant value for shareholders. As a result, we very much look forward to working closely with Pertamina to deliver projects that will not only help us achieve our objective, but importantly will benefit the people of Indonesia.”
In 2013, the national electrification rate in Indonesia was 81%, equating to over 60 million people without power nationwide. The regions of Jambi, Riau and South Sumatra, which together have a population of over 20 million people, have an estimated 5.8 million people without power. With this in mind, the Government of Indonesia set the ambitious target to add 35,000 MW of new electricity capacity for Indonesia by 2019, a 60% increase in total domestic power generation, to alleviate the frequent power outages which have hampered the country’s economic growth. In November 2015, PLN, the Indonesian state owned electricity distribution company, reported that it had signed Power Purchase Agreements (‘PPAs’) for a combined capacity of 9,403 MW or 27% of the target.
In parallel with this, the Government of Indonesia has committed to reduce greenhouse gas emissions. As a result, natural gas is expected to become the fuel of preference in the short to medium-term due to it being a much cleaner fossil fuel than other hydrocarbons such as coal and oil. To help achieve its targets, the Government of Indonesia has been promoting more open access to the gas and power markets and actively encouraging new players to participate in the country’s energy sector, particularly in smaller, sub-100 MW independent power station projects.
The smaller sub-100 MW gas-to-power projects are ideally placed to play a major part in helping the Government of Indonesia meet its objectives focussing at the grass roots level. Such projects provide a rapid, inexpensive power generation option through the use of existing small, modular, potentially mobile, off-the shelf, fit-for-purpose equipment which can be swiftly tied-in to PLN’s national power transmission network. In addition, an IPP can be designed and built according to the size of the gas reserves.
As part of the gas-to-power proposition, Andalas and Pertamina propose using MPPs, a proven technology that is in-place in Indonesia today. As well as being much quicker to implement than conventional power projects, MPPs can be executed in locations that have the greatest need, require a small land footprint, and can be completed on a leasing model, thereby reducing capital expenditure requirements. As a result, MPPs offer a highly attractive technical and economic solution for a company like Andalas, which will play an important role in assisting the Government with its targets. As an illustration, a 25 MW power station requires approximately 25 Bcf of gas to supply electricity to an estimated 40,000 homes which positively impacts the lives of many thousands of families.
Agreement with Pertamina
Andalas and Pertamina have agreed to work together to fast-track commercialisation of marginal gas fields suitable for development in conjunction with IPPs. Initially the focus will be on building a portfolio of opportunities in the Sumatran provinces of Jambi, Riau and South Sumatra where the electrification rates are well below the national average and where an abundance of marginal gas fields has already been identified and screened.
The agreement with Pertamina includes the formation of a joint working and steering committee of which Andalas has two committee members and Pertamina has four. The agreement is for an initial one year term, which can be extended, and is non-exclusive and non-binding. The partners have agreed that the work to be performed will be completed at their own cost unless third party input is required, which will be shared subject to agreement at that time.
Upon successful completion of this work, it is intended both parties will sign a JDA to design, construct, fund and operate each IPP. In conjunction with this, the partnership will work to generate plans and applications that are suitable for submission to PLN for approval and inclusion in its 10-year plan.
Pertamina – Indonesia’s World Class National Oil Company
Pertamina was formed in 1968 by the merger of two Indonesian government enterprises, Pertamin and Permina. It is considered a strategic national asset and a key contributor to the Government of Indonesia’s revenues via taxes and dividends. Pertamina’s role is to carry out integrated core business in oil, gas, renewable and new energy based on strong commercial principles both inside and outside of Indonesia. It is the only fully integrated oil and gas company in Indonesia and was a pioneer of the LNG export business in the late-1970s and early 1980s.
Today Pertamina is ranked 230 on the Global Fortune 500 of companies generating over US$41 billion in revenue and with some US$45.5 billion in assets in 2015. It has interests in over 230,000 square kilometres of acreage, has over 5 billion barrels of oil equivalent (‘boe’) in Proven + Probable (2P) Reserves, and in 1H 2016 its production reached 640,000 boe per day, equating to over 50% of Indonesia’s total hydrocarbon production.
Pertamina’s business extends across upstream exploration and production, and includes refineries, LNG import and export facilities, geothermal power production, gas pipelines, LPG filling plant and service stations. It also includes drilling and production services, shipping, aviation, hotels, marketing, insurance and other services.
Andalas has prepared a summary presentation of Pertamina and its Operations. The Company’s Chairman has also added a new article to the recently announced blog, ‘Insights from the Chairman’. Both the presentation and the blog will be accessible via the Company’s website: http://www.andalasenergy.co.uk/.
For further information, please contact:
|David Whitby||Andalas Energy and Power Plc||Tel: +62 21 2783 2316|
|Cantor Fitzgerald Europe
(Nominated Adviser and Joint Broker)
|Tel: +44 20 7894 7000|
Peterhouse Corporate Finance
Limited (Joint Broker)
Tel: +44 20 7469 0930
Cornhill Capital (Joint Broker)
Tel: +44 20 7710 9610
St Brides Partners Limited
Tel: +44 20 7236 1177