By Dr. Michael Green

Big news this morning from Coro Energy, the Southeast Asian energy company with a natural gas and clean energy portfolio. Investors have just learnt that the partners in the Duyung PSC (in which Coro has a 15% stake) have approved an updated Plan of Development (PoD). In addition, the partners have also approved and secured alignment with SKK Migas on the PoD. Basically, the PoD has now been submitted to the Indonesian Ministry of Energy and Mineral Resources for approval. 

The Operator of Duyung PSC has commissioned Competent Persons Report (CPR) that has been prepared by GaffneyCline Associates for the Mako development. The revised PoD is based on this CPR which determined highly compelling economics of a 51% IRR and an NPV(10) of US$577 million gross which is worth US$87 million net to Coro.

The CPR outlined that there was a 42 Bcf net entitlement of 2C resources to Coro during the PSC life, with plateau production of 120 MMscf/d for six years in the Best Case (2C) scenario. The CPR capital expenditure requirement to first gas estimated at US$251 million gross (US$38 million net to Coro).  Coro expects to secure a Reserve Based Lending facility for a large portion of this capital.

Regarding the all-important Gas Sales Agreements (GSA), the Operator has indicated that terms for gas sold into Singapore are under discussion with SKK Migas, with a view to finalising sales arrangements in the near future.

At the time James Parsons, Coro’s Chairman had this to say. “We are delighted with progress on our flagship asset, the Duyung PSC, where we have now approved an updated PoD and are moving to finalise the long-awaited GSA, both significant milestones on the path to building material value for our investors.  As demonstrated by the US$87M NPV10 (net to Coro) reported in the CPR, recent structural increases in global gas markets very much now favour Coro Energy and the Mako gas field.”

Conrad Asia Energy Ltd’s 100%-own subsidiary WNEL is the Operator of the project. It has continued to technically mature the development of the Mako gas field alongside negotiations of GSA(s), both in preparation for Final Investment Decision (FID).  Key steps on this critical path included finalising the revised PoD, on which the JV partners have now secured alignment with governmental regulator, SKK Migas, and submission for ministerial approval.

In a nutshell, the CPR is closely aligned with the PoD and is based on a two-phased development with six wells in phase 1 and a further two wells in phase 2 after 5 years of production. The wells will be tied back to a leased production platform at the field, with sales gas transported via the West Natuna Transportation System pipeline to Singapore for sales to the Singapore market.

The development plan includes first gas in 2025, with a 120 MMscf/d production plateau and a gross recoverable 2C contingent resource of 413 Bcf gas total and 281 Bcf net entitlement attributable to the Duyung PSC JV partners (42 Bcf net to Coro) during the PSC life. It has to be pointed out that decent upside exists to increase the plateau rate to 150 MMscf/d, should reservoir deliverability be sufficient – this was reported in the CPR (26 August 2022) and specified in the PoD revision.

Looking at those NPV calculations.  The Operator CPR used a gas price of US$9.97/Mscf for 2025, which is calculated on a Brent linked price formula with a Brent slope of 12% and a Brent price deck of US$80/bbl in 2025, escalating 2% per annum from 2027 hence.  The announcement did comment that the gas prices actually agreed with the gas buyers and the regulator, when the GSA’s are eventually signed, may well change. The Operator CPR estimated that the post-tax NPV10, resulting from the Best Case Contingent Resources within the Duyung PSC acreage and within life of Duyung PSC (363 Bcf), results in the some US$577 million (US$87 million net to Coro) and a 51% IRR mentioned earlier on.

First gas from the Mako gas project is planned to be sent to the market via the West Natuna Transportation System. Such a development will need a Conductor Support Frame (CSF) for one dry wellhead and gas import-export support, bridged-linked to a leased bridge linked Mobile Offshore Production Unit. The CPR Phase 1 capital expenditure is estimated to be US$251 million and total capex came out at US$303 million. These estimates are going to be updated as a consequence of envisaged Front End Engineering and Design (FEED) studies.

ASSESSMENT

People might ask what are the chances of success here. Well, this hydrocarbon play has already been discovered and has known resources, so the CPR carries a probabilistic range of values. It has got to be highlighted that whether it be the Low, Best or High Case, they are all successful outcomes with increasing value that could be achievable.

By any yardstick we believe that Coro is alarmingly cheap and this morning’s announcement reveals it all. Coro must be seen as a highly leveraged play on the oil price. With a structural change in energy prices, certainly we see the US$87 million NPV being maintained. Converted to sterling, deduct the debt and you roughly get a figure of £55 million and that’s only based on US$80 Brent (it’s now $90).  So, we believe the current market cap of £6 million looks cheap.

That valuation is also ignoring the latest developments in Italy and the beginning of great things in Vietnam and The Philippines that kicked off with the commissioning of the pilot Vietnam solar project. In Italy, recently the board seem to be guiding investors towards believing that the company could actually net (£8.4 million) plus from pulling out of the country.

Outside of Duyung, the news flow looks as though it could be quite impressive. We are expecting more news of Vietnam following commissioning and updates on progress in the Philippines. Bear in mind it is very quick to get a 3MW roof top solar project up and running in Vietnam as it just doesn’t need the same level of permitting as a far larger 100MW project in the Philippines. But we believe all these projects have all the makings of being big winners.

We initiated coverage on Coro Energy in January 2022 with a Conviction Buy and a target price of 1.50p, when the shares were trading at 0.275p. The valuation was made based on a very different world and energy prices with gas prices in South East Asia moving upwards in line with the higher energy price environment. There was upside before with Coro – but given what has gone on in the energy sphere, we see even more upside.

We are in the midst of preparing an updated research report on Coro and will also be revisiting our valuation and target price for the stock to reflect the above goings on. Currently the stock trades at 0.3025p and we are more than happy to reiterate our stance.

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