Coro Energy plc (AIM: CORO), the pan Euro-Asian gas explorer, is pleased to announce its annual financial results for the year ended 31 December 2018.
Highlights
South East Asia
- Initiated South East Asia strategy targeting projects with discovered resources, with exploration and commercial upside
- Secured our maiden deal in the region, acquiring a 42.5% interest in the development-ready Bulu PSC, East Java, Indonesia (transaction completion is pending regulatory approvals)
- Successfully entered a second country in the region in Q4 2018, announcing a joint study agreement with Petronas on Block 2A, offshore Sarawak, Malaysia
- Post year under review, announced our second Indonesian acquisition, taking a 15% stake in the Duyung PSC, offshore West Natuna
- Continuing to evaluate a strong pipeline of business development opportunities
“The Malaysian Joint Study agreement with Petronas is for 12 months and we see this as a big vote of confidence in Coro and its technical team.”
Corporate
- Raised €16.1m new equity to kick-start our South East Asia growth strategy
- Introduced Lombard Odier Asset Management and CIP Merchant Capital as new cornerstone investors
- Appointed a new CEO with extensive experience in the South East Asia region, and a specialist capital markets CFO
- Post year under review, issued a €22.5m Eurobond, subscribed for by cornerstone investors Lombard Odier and CIP Merchant Capital, as well as other institutions
James Parsons, Non-Executive Chairman and James Menzies, Chief Executive Officer, gave the following statement.
“With several transactions now signed in South East Asia, we are continuing to build momentum with a pipeline of accretive deals being developed to complement our initial asset acquisitions, which we will continue to work up the value curve.”
2018 has been a hugely exciting and dramatically transformational year for Coro. We have seen senior personnel changes, corporate consolidation allowing us to achieve scale in our European business, a re-branding to become Coro Energy plc and the instigation and initial execution of our new South East Asian growth strategy directed at unlocking latent value in South East Asia. This new growth strategy was supported by an oversubscribed equity issue raising gross proceeds of €16.1m and with it the introduction of two new supportive cornerstone investors. This initiative yielded results with the announcement of our first transaction in the region, providing entry into the Indonesian upstream gas sector through the acquisition of a 42.5% interest in the Lengo gas field, offshore East Java (pending regulatory approval). Building on this momentum, the Company also announced entry into Malaysia through a joint technical study with national oil company Petroleum Nasional Berhad (“Petronas”) over offshore Block 2A. Our initial evaluation work has identified a number of very large structural closures at prospective levels. And finally, post year-end, the Company announced its second transaction in Indonesia, with the acquisition of a 15% interest in the Mako gas field, offshore West Natuna.
The Group made a loss before tax of €11.3m for the period (2017: €7.0m), which was primarily driven by impairment of exploration assets in our Italian portfolio, costs associated with the acquisition of Sound Energy Holdings Italy Limited (“SEHIL”), business development activities in South East Asia and the AIM readmission process.
Execution of Strategy Leads to Debut Deals in South East Asia
The Company’s new growth strategy is centred on developing a business focused on finding and commercialising oil and gas resources in South East Asia. We believe the region possesses some of the world’s fastest developing economies where demand for gas currently significantly outstrips supply. This, combined with forecast increasing GDP rates, commensurate growth in energy demand and the increasing shortage of gas in the major markets, provides a compelling investment proposition for investors at this point in the cycle. This growth strategy is focused on high-graded countries, such as Indonesia, Malaysia and Vietnam where we see significant ‘yet to find’ hydrocarbon resources as well as numerous fallow discoveries which represent opportunities for commercialisation and development for independent players such as Coro. While we have a preference for gas over oil assets, we are continuing to evaluate asset opportunities for both products. We see shareholder value being created through:
- Exploration stage assets – where value can be added through technical de-risking and the drill bit;
- Appraisal stage assets – where we see low technical risk and potential for smart, low-cost development options; and
- Production stage assets – where it facilitates exploration and appraisal upside and has financial synergies with the wider business.
Lengo Gas Field, Bulu PSC, Indonesia – A transformational step for Coro
The Lengo field contains certified 2C resources of 359 Bcf (152 Bcf net to Coro) and is forecast to produce at a plateau rate of c. 70 MMscfd (c. 30 MMscfd net to Coro) when it comes on-stream. The deal marks a highly significant step for the Company, with reserves and resources, production and cash flow potential showing step changes in magnitude. With a $12m outlay in cash and shares to be paid as consideration for the asset, Coro has acquired these resources at a price of $0.1/MMBtu, and with the East Java gas market pricing typically between $5.50 – $8/MMBtu, we see this deal as being both strongly value-accretive for shareholders as well as physically transformational for the Company. Completion of the Bulu PSC acquisition is pending regulatory approvals from the Indonesian government.
Mako Gas Field, Duyung PSC, Indonesia – High impact asset with exploration upside
The Mako field contains a certified 2C resource of 276 Bcf (41 Bcf net to Coro) and is forecast to produce at a plateau rate of c. 90 MMscfd (c. 13.5 MMscfd net to Coro) when it comes on-stream. This asset also has some exciting and relatively low-risk step-out exploration targets with an additional prospective resource of c. 347 Bcf (52 Bcf net to Coro) to be potentially unlocked via two targets, the first of which is a 100 Bcf prospective feature above the southern area of the Mako field, to which we have applied a geological 75% chance of success, and the second of which is a 250 Bcf prospective feature beneath the northern area of the Mako field which has a geological 45% chance of success. Being located close to the West Natuna Transport System enables the prospect of selling gas into the lucrative Singapore market where a heads of agreement with a gas buyer has already been signed. With a total consideration of $15.3m being paid in cash and shares, Coro has acquired these resources for exceptional value at $0.34/MMBtu on a 2C basis with the Singapore gas market pricing typically between $8 – 11/MMBtu.
Petronas Block 2A, Malaysia – First foray into prized territory
Coro are conducting an extensive joint technical study in collaboration with Petronas over Block 2A, offshore Sarawak. This block is yet to be drilled and is located in deep water in close proximity to large discoveries to the east of the block. The Central Luconia Province is one of the most prolific hydrocarbon basins offshore Malaysia and is home to numerous large oil and gas fields. The Province has been a standout exploration success story in South East Asia, having seen a string of successful exploration results from the deeper water, resulting in multi-Tcf volumes of commercial gas being discovered over the past five years. Work to date on the block has identified a number of very large structural closures at prospective levels, consistent with known regional plays in this prolific part of the basin.
Board and Management Team Restructured
In refocusing its activities on South East Asia, the Board appointed a new CEO, James Menzies. James is a geologist by training and a seasoned oil and gas executive who possesses extensive working knowledge of South East Asia having previously founded Salamander Energy plc before exiting in a trade sale to Ophir Energy plc in 2015. The Company also announced the appointment of a new CFO, Andrew Dennan, who has a background in investment management and corporate finance and brings with him a wealth of capital markets and corporate transaction experience.
European Business Consolidation Provides the Platform
The initial step in our transformation saw the expansion of our position in Italy through the acquisition of Sound Energy Holdings Italy Limited. Coro now has a portfolio of production and development assets in Italy and is currently operating six production concessions in the country. In addition to a wider asset footprint, this acquisition resulted in an enlarged operational and management team with extensive oil and gas experience in Italy and wider territories.
Outlook: Positioned to Build Further on SE Asia Position
The Company is now well-poised to accelerate growth in shareholder value having:
- Consolidated a gas production business in Italy with a strong balance sheet and access to capital supported by two cornerstone investors;
- Recruited the right people with an enviable track record of value creation and deep regional expertise;
- Identified a new market to grow into with strong and attractive fundamental drivers and where we believe we have advantages in experience, network and capability;
- Began transacting on a new growth strategy resulting in a 690% increase in net resources from 33 Bcf to 227 Bcf and an increase in forecast production plateau from 4 MMscf/d to a projected 45 MMscf/d.
With several transactions now signed in our new growth region, we are continuing to build momentum, with a pipeline of accretive deals being developed to complement the initial assets which we will continue work up the value curve to the benefit of our shareholders.
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