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Oil and gas explorer Sound Oil plc (LSE:SOU) is getting out of an exploration contract in Indonesia after drilled exploration wells proved disappointing, much to the delight of the investors of the AIM-listed firm, but will still be receiving royalties should future exploration results in discovery of hydrocarbon.
In a statement, Sound Oil said it sold its 20% in the Citarum Production Sharing Contract to the said PSC’s operator, Pan Orient Energy (Citarum) PTE Limited, in exchange for waiving US$2.4 million worth of cash calls due to the company.
Sound Oil will further receive a US$10 million and US$6 million in cash on contingent revenues for the first and second discoveries, respectively, as 100% royalties.
News moved investors to a shopping spree of stocks in London as over 61 million shares were traded by 2:00 PM GMT, giving a raise of 6.5% to Sound Oil share price, at 1.225 pence.
Reshaping the Portfolio
According to Sound Oil Chief Executive, James Parsons, the decision to give up the PSC was the first step towards reshaping the company’s portfolio.
“The drilling programme in Citarum has been extremely problematic and had the potential to jeopardise the Company’s funding position,” said the CEO.
Sound Oil acquired the licence following a takeover of a private Indonesian firm, which originally held the stake, along with the Bankanai PSC, where a gas field is scheduled to be operational by the second half of 2013.
The decision follows difficulties encountered in drilling the first two exploration wells within the licence area. The first well was abandoned after encountering “unstable rock formations” after over a month of drilling, walking away from the estimated prospective deposit of about 470 billion cubic feet of gas mean reserves. Operations also had to be terminated in the second well after overpressured gas bearing sandstones were encountered and caused drilling issues.
In Indonesia, Sound Oil is left with a 5% stake in the Bankanai PSC, where the Kerendan gas field is set to produce gas to be sold locally. The said field contains proven recoverable reserves of about 180 bcf, 9 bcf of which is net to Sound Oil.
New Directions
The move also comes a week after a change in leadership within Sound Oil with the resignation of Gerry Orbell as Chairman and Chief Executive of the firm and replaced by Andrew Hockey, who was an incumbent Non-Executive Director and will take over the Chairmanship, and James Parsons, who was the company’s Chief Financial Officer prior to becoming the new CEO.
A third commitment well is currently being drilled with the results due by middle of November, while the operator will have to revert back to the two other wells to continue drilling as part of its commitment to the contract.
Elsewhere in Italy, where Sound Oil holds a number of contracts, a gas project is nearing production.
