Permit: Northwest Natuna PSC (AWE 50%)
Location: Northwest Natuna Sea, offshore Indonesia
AWE holds a 50% interest in the undeveloped AndeAndeLumut (AAL) Oil Project in Indonesia's Northwest Natuna Sea.
The AAL-4XST1 appraisal well, targeting the G sand reservoir, was completed in early July 2016, significantly ahead of time and under budget. This was a positive indicator for future production drilling, raising the possibility of reduced drilling times and costs and potentially a lower number of wells.
New data from the well indicated substantially lower levels of impurities; better quality crude would likely enhance overall project economics by reducing capital expenditure, lowering processing costs and improving crude pricing.
In light of the positive results from AAL-4XST1, the Indonesian government proposed that the joint venture jointly develop the G sand and the K sand reservoirs from start-up. This requires the G sand being incorporated into the K sand Plan of Development and resulted in a FID being moved into the second half of 2018 and the suspension of commercial tenders.
After taking into account the further delay to a FID, lower oil prices in 2017, and uncertainty whether the Operator will stay in the permit or divest its interest, AWE reclassified its share of AAL 2P Reserves to 2C Contingent Resources in line with SPE-PRMS guidelines. The company also impaired the carrying value of AAL and recognised a non-cash impairment of $134 million after tax and a write down in the associated US$88 million carry in its FY17 results. Although written down to nil, the carry has not been relinquished and remains payable after an FID decision. The project remains a valuable option for AWE should oil prices improve.
AWE shareholders are being asked to consider a takeover bid from Mitsui & Co,. Ltd.
Listed on the Australian Securities Exchange (ASX), AWE has reshaped itself to operate in a low oil price environment with a near-term focus on domestic gas production.