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Coro Energy takes hit despite revealing City support and major SE Asia deal (CORO)

Gas explorer Coro Energy (LSE:CORO) dipped 12.1pc to 2.3p on Monday after unveiling its latest foray into the South East Asian market. The business, which rebranded from Saffron Energy last year, will purchase a 15pc direct interest in the Duyung production sharing contract located in Indonesia’s West Matuna basin.

Duyung contains the shallow water Mako gas field, which covers more than 350km2 and has been ascribed gross 2C resources of 276Bcf of recoverable dry gas. It has also been assigned 3C resources of 392Bcf, which Coro points to as evidence of upside potential. The field also offers established infrastructure, including close links to the West Natuna Transportation System. Coro believes this will provide the potential to sell gas easily into the Singapore market.

The company will pay Duyung’s 100pc-owner and operator West Natuna Exploration $4.8m for its stake in the asset. West Natuna is 90pc owned by Conrad Petroleum and 10pc held by AIM’s Empyrean Energy.

Coro will cover this sum through a $1.85m share transfer and a $2.95m cash payment. It must also put $10.5m towards the funding of a drilling programme this year. According to the business, this represents an effective acquisition price of $0.34/MMBtu on a 2C basis.

Coro is funding cash element of the deal through the issue of a minimum of €22.5MM worth of Eurobonds, also announced on Monday. The Eurobonds have been underwritten by key Coro institutional investors Lombard Odier Asset Management and the Pegasus Alternative fund.

They will be issued at 85pc of par value, meaning Coro will receive €19.1m (£16.73m) in cash. Half of the bonds are expected to be designated as Tranche A bonds, which carry a 5pc annual cash coupon. The other will be issued as Tranche B bonds, which will accrue interest at 5pc per annum and will be payable in cash on redemption. There will also be a 7pc origination fee payable to institutional investors.

Coro’s shares remain well below the 4.1p they listed at last April. However, the firm’s ability to raise more than its current £16.7m appears to be a clear indicator of strong institutional support.

Elsewhere in today’s update, Coro said exploration targets had been identified both above and beneath the Mako field. The organisation believes these have the potential to more than double the size of Duyung’s resource.

Targets include the Tambak prospect, which is scheduled for 2019 drilling and contains mid-case prospective resource potential of c.250Bcf. It also has an encouraging 45pc chance of geological success. An additional prospect called Mako Shallow has a mid-case resource potential of 100Bcf and a very high 75pc chance of success.

A field development plan has been submitted to the Indonesian authorities for approval. This proposes an initial four-well development scheme and a further four well programme as a second phase to be drilled later in the field’s life. The plateau production rate is expected to be up to 90MMscf/d.

Coro chief executive James Menzies said: ‘Mako is a high-quality asset with a great address: a large undeveloped resource in a prolific basin and close to existing infrastructure with capacity, providing access to a hungry market in Singapore. We are also excited by the exploration potential to more than double the size of the resource – this is very significant, high value, low risk step out exploration located above and beneath the field itself.

‘The operator, Conrad Petroleum, has done a great job in bringing the project forward and advancing the technical understanding of the field and the surrounding prospects, and we are delighted to now be working with them. We see this as a potential hub for wider value creation in the region and look forward to reporting on our further progress shortly.’

Monday’s deal forms the latest step in Coro’s recent efforts to increase its position in Asia rapidly in a bid to support its so-called pan-Euro Asian strategy.

It made its first move into the continent last September when it bought a 42.5pc stake in the Bulu production sharing contract offshore east Java for $12m in cash and shares. The fully-funded acquisition, which pushed Coro’s shares up by 12pc, includes the Lengo gas field, which contains gross 2C resources of 359Bcf recoverable dry gas and total 3C resources of 420Bcf. It is expected to produce at a plateau rate of c.70MMscfd – 30MMscfd net to Coro – when it comes on stream.

In December, Coro followed this with an agreement to conduct a joint technical study over a Malaysian block called 2A alongside a firm called Petroleum Nasional Berhad, or Petronas. Block 2A is located in a deepwater area near the prolific Sarawak basin. Although it is yet to be drilled, work to date has identified numerous large structural closures at prospective levels consistent with nearby plays. Initially, the deal will allow Coro to conduct an extensive technical analysis of the block. Following this, it will be given the option to apply for a production sharing contract, subject to approval from Petronas.

Author: Daniel Flynn

Disclaimer: The author does not own shares in any of the companies mentioned in this article

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