Salamander Energy issues Interim Management Statement
Salamander Energy plc issues the following Interim Management Statement for the period from 1 January 2014 to 6 May 2014. This statement is issued ahead of Salamander’s Annual General Meeting which will be held at 2.00pm today at the Institute of Directors, London.
· 2014 average production forecast maintained at 13-16,000 boepd
· c.360 Bcf of additional gas discovered at West Kerendan
· Development drilling on Bualuang field continues to highlight new zones of interest
· Bualuang Charlie development plan expected to be submitted for Board approval in mid-2014
· FSO conversion on schedule, vessel expected to arrive at Bualuang field in July 2014
· Atwood Mako rig contract extended by two months (with further potential to extend)
· Resubmission of G4/50 EIA expected in May 2014
Production has recovered well from a period of downtime at the Bualuang field early in the year with Group production up to the 30 April 2014 averaging 10,900 boepd, with an underlying full production rate of 14,900 boepd during April. With the current development drilling campaign ongoing, the Group reiterates its 2014 production forecast of 13,000-16,000 boepd.
In January production at the Bualuang field was shut-in due to the facilities being damaged. Drilling continued whilst production was shut-in, with a further two new development wells being completed before the field recommenced production on 13 February, with significantly less water cut in the production stream. With a further three new wells being completed across the balance of the first quarter, Bualuang production has been excellent averaging 13,000 bopd during April 2014.
A key milestone in converting a large tranche of Bualuang’s 27.7 MMbo of certified contingent resources into 2P reserves will be Board approval for the Charlie development. The conceptual design studies for the additional infrastructure are well advanced and the Group is on schedule to table the preferred development concept for Board approval over the summer.
Looking to the future, despite significant upgrades during 2013, management believes that there is potential for further resource additions on the Bualuang field. The current development drilling campaign has highlighted yet further oil-bearing pay zones which are yet to be documented fully.
The plans to reduce operating costs with the swap out of the FPSO for an FSO are on schedule with the FSO due to be in the field at the start of the summer with switchover to the new production infrastructure expected to take place in August 2014. On completion of the switchover from the FPSO to the FSO operating costs will be reduced by up to US$25 million per annum.
Production from the Sinphuhorm field is performing ahead of expectations with net production year to date averaging 1,800 boepd.
On the exploration front, the additional work on the G4/50 Environmental Impact Assessment (“EIA”), requested by the Technical Review Committee at the last hearing earlier this year, has now been completed and the EIA is expected to be submitted imminently.
Following the successful completion of the West Kerendan 1 exploration well, Salamander has identified c. 650 Bcf of recoverable gas within the Kerendan-West Kerendan development area (onshore Central Kalimantan). Of these volumes 120 Bcf are currently under contract, and the Group is now pursuing the commercialisation of the additional volumes.
A key operational milestone in Indonesia is first production at the Kerendan gas field. We remain encouraged by the progress that the off-taker has made during the first half of the year with momentum building toward the completion of the power plant and transmission lines. Manufacture of the 16 gas engines for the power plant has been completed in Finland and the first shipment of eight engines is currently in Kalimantan waiting to be transferred up river to site. The second shipment is en route to Indonesia. The installation of the transmission lines continues apace. Negotiations are on-going regarding the improved pricing for the initial GSA and are these expected to be concluded later in the year.
The West Kerendan gas discovery was announced in March with resources estimated to be c. 360 Bcf. The well tested at 50 MMscfd making it the most productive well in the area and removing the immediate need to drill a further appraisal well in support of negotiation of a second GSA.
Salamander is now focussed on commercialising the c. 520 Bcf inventory of un-contracted gas in the Kerendan area, and the Group has opened discussions with the regulator with a view to expanding the Kerendan plan of development to include the West Kerendan area.
With five wells in the Kerendan area testing at a combined flow rate of 90 MMscfd, there is plenty of production capacity to support incremental gas sales. Salamander sees potential to deliver the 70 MMscfd to meet the maximum capacity of the power plant once its planned expansion is completed. The next step in commercialising the un-contracted gas involves the certification of reserves by the Indonesian authorities of the enlarged Kerendan resource. This will determine the volumes to be sold under additional gas sales agreements.
Finally, on the exploration front, the Ocean General rig is expected to arrive on location in the North Kutei area in late May/early June for the re-drill of the North Kendang prospect, the original well having been abandoned following a significant wet gas kick. The majority of this well is being paid for through insurance proceeds.
At 31 March 2014, following the deferral of a significant portion of the first quarter’s budgeted production into H2 2014 due to the unplanned outage of the Bualuang field, net debt (including the $100 million convertible bond) was $307 million and total cash and funds were $204 million.