Bass Oil Ltd (ASX:BAS) has set a direction for growth by pursuing onshore opportunities near its Tangai-Sukananti oil production JV in Indonesia and other opportunities in the nation that have significant potential.
The Melbourne-based company is aiming to grow bigger and increase production levels after becoming a producer with its South Sumatra Basin acquisition known as Sukananti, or KSO, in Indonesia.
The company’s non-executive chairman Peter Mullins heads up Bass’ board of directors while petroleum engineer Giustino ‘Tino’ Guglielmo leads the company in an executive role as managing director.
Guglielmo spoke to Proactive Investors this month, saying Indonesia was a “very interesting operating environment”.
The MD highlighted the maturity of the country’s oil industry – production first started in 1885 in East Sumatra – and its established infrastructure.
Guglielmo said, “It’s a mature oil environment. Its regulations and its regulatory environment (are) very well structured.
“The fiscal regime is clear and pretty tidy to work under.
“We’ve got our highly-skilled, fully-Indonesian workforce based out of Jakarta, and the field operations obviously have a field team … in and around oil and gas infrastructure that’s run by Pertamina.”
Jakarta-based Indonesian state-owned oil and natural gas corporation PT Pertamina is the nation’s second-largest crude oil producer in Indonesia after Chevron Pacific Indonesia.
It is also a regulator that can pass on opportunities.
Guglielmo explained, “This May just gone, the president of Indonesia, President (Joko) Widodo, stood up at the Indonesian Petroleum Association Conference and said … ‘You guys have got a portfolio full of properties that you are not getting to’.
“They are now looking for people like us to come in, and bring capital, and further expertise so that they can actually release properties that are secondary to them.
“(These properties) are still a lot of value to a company like ours to be able to do what we did with Sukananti, which is double production without drilling a well.”
A range of opportunities
Bass has ambitions to grow the company with what Guglielmo calls type one and type two growth opportunities.
Type-one opportunities are likely to be onshore projects found near Tangai-Sukananti KSO.
Bass’ type-two opportunities are what petroleum engineer Guglielmo labels “company makers” and can be further afield.
He said, “Type one is lower risk type opportunities, and type two, in a balanced exploration portfolio, you need to have exposure to some company-making opportunities, and North Madura we see as one of those.
Regulator SKK Migas granted Bass a licence for North Madura after a Middle-Eastern company opted for divesting the asset as it exited Indonesia.
Bass will earn up to 100% of a production sharing contract for the project adjacent to and 3 kilometres from Ujung Pangkah where production averaged 9,100 barrels a day for a 44 standard cubic feet of gas a day output.
The company is active in its search for projects.
Guglielmo said, “We are screening opportunities like crazy.
“In … less than 12 months, we’ve screened 60 opportunities, been able to short list somewhere between five and 10, and we’ve got heads of agreements signed up or near to signed up for two of those opportunities.”
The company is focused on its work plan for the next year.
Guglielmo tipped, “(20)19 is going to be bolstering production in our existing Sukananti licence, and for us to be acquiring and filling out the portfolio.”
Production capacity is about 830 barrels a day
Bass has a 100% share of Tangai-Sukananti KSO’s annual production capacity as part of a joint venture for the asset.
Production capacity is more than 600 barrels of oil a day, being 781 barrels a day in November 2018.
In November, the company produced 23,434 barrels of oil for the JV, a 4,361-barrel decline on its October 2018 production of 27,795 barrels.
Last month, 22,606 barrels were sold at an oil price of about US$62.25 a barrel, a US$14.44 a barrel decline on October which followed the market.
The company is focused on easing short-term processing restrictions at the KSO operation and deferred production by about 50 barrels a day last month.
Bass also has a 55% share of 2P reserves at KSO, which were 1.35 million barrels of oil in June 2017.
Bass expects to start drilling at Bunian 5 well on the Tangai-Sukananti fields in the June 2019 half-year, with drill rigs not expected at the area until March 2019.
Bass has an upgrade to the Bunian and Tangai facilities in the works so it can process the additional oil and fluid production expected after the completion of drilling.
Guglielmo told Proactive, “We are getting ready for an exciting drilling program in 2019, but for us to be able to increase production just by optimisation methodologies is just wonderful for a company like ours.
“We’ve got a drilling program in 2019, 2020, that’ll be somewhere between two and four wells to be drilled in our existing properties.
“New properties that we’re looking at acquiring all the time, we’re prepared to actually go in and do remediation, and do a little bit of drilling through ‘19.”
Australia persistence suits Indonesian recovery factors
The MD highlighted average recovery factors in Indonesia, comparing them to those achieved at Australian operations.
Guglielmo said, “What happens in Indonesia is the sweet stuff gets sorted, it gets exploited and developed, but when they get to about 30% recovery factor they … move onto other properties.
“They leave (fallow) these properties that are about halfway through depletion … and this is what’s a beautiful situation for us.
“In Australia, we’re used to getting 40% and 50% recovery factors, so they’re leaving a good measure of the oil behind, and if the fields you’re targeting are large enough, you could be targeting opportunities 10, 20 million barrels, which is bigger than most of the oilfields onshore in Australia.”
The allure of Indonesia is strong for Bass.
Guglielmo said, “We think that Indonesia being a low-cost operating environment, highly prospective, and with significant infrastructure, (it’s) a wonderful place to be.
“We’re first movers as well. A lot of people don’t understand Indonesia – we’ve been in there for two years, our team has been operating for almost 10, and we feel very fortunate to have the position that we’ve got.”
Low costs stand out amid low oil prices
The MD acknowledged some investors’ reticence to join in on projects in Indonesia but highlighted the cost advantages of the South East Asian country’s operating environment.
Guglielmo said, “People are a little bit curious and are standing back on Indonesia, but even in this low oil-price environment our operating costs are less than $30 a barrel, so if we’ve got $50 a barrel crude oil prices, we’re just fine.”
Crude oil reached a 16-month low of US$46.24 on Tuesday, December 18, 2018.
Guglielmo said this month, “What happens in a market like this, when the crude price falls from $80 to $50, the people that are looking to come out of their shell and make some investments say, ‘Oh, hang on. I want to hang back.’
“That’s just glorious for us because we almost have a playing field with very, very little competition, and I’m saying, ‘well, stay at $50 for as long as it takes to get our portfolio set, then you guys can follow us’.”
Bass is set to benefit from its low-cost advantage as it grows its portfolio with low-risk and higher value opportunities in Indonesia.
— With Danielle Doporto, Berkay Erkhan