Empyrean Energy : Independent Resource Audit of Mako Gas Field and Conversion to Gross Split PSC in Duyung PSC, Indonesia

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Empyrean Energy PLC - EME Independent Resource Audit of Mako Gas Field Released 07:25 21-Jan-2019

RNS Number : 6094N

Empyrean Energy PLC 21 January 2019

This announcement contains inside informa�on

Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil & Gas

21 January 2019

Empyrean Energy PLC ("Empyrean" or the "Company")

Independent Resource Audit of Mako Gas Field and Conversion to Gross Split PSC in Duyung

PSC, Indonesia

Empyrean Energy plc, the oil and gas development company with interests in China, Indonesia and the United States, is pleased to announce an independent resource audit of the Mako gas field by Gaffney Cline & Associates ("GCA"). Addi�onally, West Natuna Explora�on Limited ("WNEL" or the "Operator") has been invited to convert the Duyung Produc�on Sharing Contract ("Duyung PSC") to the Government of Indonesia's ("GOI") new Gross Split PSC structure.

WNEL is the owner and operator of the Duyung PSC in the West Natuna basin, offshore Indonesia which contains the Mako gas field. Empyrean currently own a 10 percent shareholding in WNEL, and Conrad Petroleum Ltd. ("Conrad"), currently own a 90 percent shareholding in WNEL.

Highlights

• · Gross 2C (con�ngent) resources audited by Gaffney Cline & Associates in the field of

  276 Bcf (48.78 MMboe) of recoverable dry gas, and gross 3C resources of 392 Bcf (69.3

  MMboe), represen�ng addi�onal field upside

• · Iden�fied explora�on targets beneath the Mako gas field, including the high priority

Tambak prospect (formerly 'Mako Deep') with poten�al to be up to twice the size of the exis�ng Mako gas field discovery

• · The Duyung PSC has been converted to the new GOI contractor- and investor-friendly

  Gross Split PSC scheme, which gives contractors greater spending and opera�onal flexibility to carry out their business

• · An updated field development plan using the Gross Split based fiscal terms has been submi�ed to the Indonesian authori�es for approval

Tom Kelly, CEO of Empyrean, commented:

"The audit by GCA provides a tremendous endorsement of the Mako gas field, confirming much of Conrad's and our own technical assessment of the field. More work on a given field-whether drilling opera�ons, technical matura�on, or administra�ve progress (such as gas commercialisa�on and securing access to necessary infrastructure)-reduces risk, removes uncertainty and allows for more accurate appraisal and valua�on. The conversion of the Duyung PSC to a Gross Split PSC is a step in the right direc�on resul�ng in strengthening project economics while at the same �me lessening the bureaucra�c burden on the execu�on of the project. Rarely do you get such a unique mix of low risk appraisal coupled with a poten�ally high reward explora�on target under an advantageous structure. Empyrean looks forward to con�nuing to work closely with Conrad to unlock value from the Duyung PSC."

GCA Audit of the Mako Gas Field, Duyung PSC, Offshore Indonesia

The Mako gas field is an extremely large, shallow structural closure of over 350km². The reservoir is a Pliocene-age sandstone, with a gas-water contact at approximately 391m true ver�cal depth sub-sea. The field has excellent seismic defini�on with direct hydrocarbon indicators being very evident.

Having been drilled but not tested by prior operators of the acreage, the commercial viability of the Mako gas field was demonstrated by the Mako South-1 well drilled by WNEL in 2017. The well was drilled to core and test the Mako reservoir, flowing up to 10.8 MMscf/d of dry gas on test. In total, four wells have penetrated the reservoir sec�on, and while further appraisal is planned given the huge areal extent of the field, the reservoir distribu�on is reasonably well understood.

The Mako field is located in the prolific West Natuna basin, approximately 16km from the WNTS pipeline system which delivers gas from Indonesia to Singapore. A plan of development has been submi�ed to the Indonesian authori�es, and gas marke�ng discussions are in advanced stages, with a Heads of Agreement already signed with a buyer in Singapore for the Mako gas ("HOA").

GCA were commissioned to conduct an independent resource audit of the Mako gas field. GCA is a leading reserves cer�fica�on and audit firm with 50 years' experience in conduc�ng reserves and resource evalua�ons, and audits to the standards demanded by securi�es regulators and professional engineering bodies worldwide.

GCA rigorously tested internal reservoir models, development concepts, produc�on es�mates, and cash flow projec�ons. This resulted in GCA rendering the following opinion on the resources and economics of the field:

GCA Es�mated Con�ngent Resource & Post-Tax NPV, Mako Gas Field Development, Duyung PSCCon�ngent Resources

Gross 100% Field

Net A�ributable to Empyrean (10%)

Bcf	Bcf
1C (Low Case)	184	18.4
2C (Mid Case)	276	27.6
3C (High Case)	392	39.2

The resources are classified as "con�ngent" since no gas sales agreement ("GSA") has yet been signed and a Final Investment Decision ("FID") has not yet been taken. However, the HOA is a defini�ve step on the path to execu�ng a GSA, the defini�ve gas sales document detailing all the terms regarding the sale of all Mako gas to Singapore. Once a GSA is signed / FID has been made, these resources will automa�cally be upgraded to reserves, and classified as proved, probable and possible. Nego�a�ons on the GSA are underway and progressing as expected.

The Operator's current field development plan envisages an ini�al four well development scheme, a small pla�orm with compression facili�es and an addi�onal four wells as a second phase to be drilled later in the field's life. The plateau produc�on rate is envisaged to be up to 90 MMscf/d.

Near Field Explora�on Poten�al

A series of prospects both beneath and above the Mako field have been mapped. Of par�cular note is the Tambak prospect (formerly 'Mako Deep'), a Lower Gabus structure that sits beneath the northern end of the Mako gas field. The target interval within Tambak exhibits seismic amplitude brightening, conformable with structural closure.

At the southern end of the field, over the structure's crest, sits the Mako Shallow prospect. This again shows very strong direct hydrocarbon indicators on seismic, conformable with closure in shallow Muda sandstones.

A drilling campaign is being planned to comprise an appraisal well within the Mako gas field and a well to test the Tambak prospect. Further announcements regarding the upcoming drilling program will be made in due course.

Conversion to Gross Split

In 2017, the Ministry of Energy and Mineral Resources in Indonesia ("MEMR") issued new regula�ons, introducing a new PSC scheme based upon a "Gross Produc�on Split". The Gross Split PSC eliminates the previous cost recovery scheme in favour of a higher headline contractor share of revenues. Under the cost recovery regime, with the government take being directly reduced by contractor expenditure, budge�ng is o�en a lengthy nego�a�on with poten�ally significant compromise. Under the new regime, the government take no longer depends on the explora�on and development costs, hence the approval process for budgets has been drama�cally streamlined, with the determina�on of op�mal expenditure made by the contractor.

The Gross Split scheme on the other hand, being similar to the interna�onal well-established royalty/tax regime provides for more flexibility in the way that the various opera�onal ac�vi�es are procured and expended.

Mako Gas Field Plan of Development

A Plan of Development for the Mako gas field ("POD") was submi�ed early August 2018. The POD has been approved by SKK Migas, the Indonesian oil and gas regulator, and was pending approval from the MEMR prior to conversion of the Duyung PSC to a Gross Split PSC. Post the conversion to the Gross Split PSC, the POD has been revised to conform with the new requirements and submi�ed, and the revised POD is being evaluated by SKK Migas and the GOI. WNEL have advised that the POD is expected to be approved within Q1 2019. Approval of the POD will be another significant milestone for the project and the Company.

The informa�on contained in this announcement has been reviewed by Empyrean's Execu�ve Technical director, Gaz Bisht, who has over 29 years' experience as a hydrocarbon geologist and geoscien�st.

**ENDS**

For further informa�on:

Empyrean Energy plc Tom Kelly

Tel: [phone]

Cenkos Securi�es plc Neil McDonald

Tel: [phone]

Beth McKiernan Pete Lynch

Tel: [phone]

Tel: [phone]

St Brides Partners Ltd Lo�e Wadham Frank Buhagiar

Tel: [phone]

Tel: [phone]

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Independent Resource Audit of Mako Gas Field - RNS