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Baron Oil announces upgraded resource estimate in Timor-Leste

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Baron Oil [AIM:BOIL], the independent upstream oil and gas company with offshore operations in Timor-Leste and in the North Sea off Scotland, published an update on its offshore Chuditch Production Sharing Contract in Timor-Leste.

The company reported a best case aggregate gross gas-in-place estimate of approximately 5,500 billion cubic feet (BCFe) of natural gas, for its TL-SO-19-16 production sharing contract, an upgrade on the estimate of 3,889 BCFe produced through 3D seismic data reprocessing in July 2021.

This equates to a best case Recoverable Resource estimate of 3,625 BCFe, an upgrade on the 2,924 BCFe indicated by 3D seismic surveying.

In a statement this morning (24th October), the company said: “The preliminary interpretation has led to a significant uplift in seismic imaging quality and has significantly reduced subsurface risk.”

The statement continued: “Mapping indicates a greater concentration of resources into the Chuditch-1 discovery in a simplified and robust structure with relatively high gas recovery expected. The adjacent prospectivity has evolved; its understanding is now more robust, including confirmation of leads extending onto the 3D seismic data area.”

The Timor-Leste TL-SO-19-16 PSC is owned by the SundaGas Timor-Leste (Sahul) Company, a fully owned subsidiary of Baron Oil, as operator and 75% interest holder. The remaining 25% interest is held by a subsidiary of the Timor-Leste state oil company, Timor Gap, whose interest is carried by Baron subsidiary, SundaGas Banda Unipessoal Lda to development.

The Chuditch PSC is located approximately 185km south of Timor-Leste, 100km east of the producing Bayu-Undan field, and 50km south of the Greater Sunrise potential development. It covers an area of approximately 3,571 km2, in water depths of 50m to 100m, and contains the Chuditch-1 gas discovery drilled by Shell in 1998. The well was drilled in 26 days at a cost of USD8m and encountered a 25-metre gas column in the Jurassic Plover formation on the flank of a large, faulted structure.


LNG potential

Chuditch-1 gas discovery best case recoverable resource estimate of 1,350 BCFe is materially larger and may independently represent a Liquefied Natural Gas scale resource, said the company.

Baron Oil said that it has engaged consultancy group ERCE to prepare a competent persons report to provide an independent validation of Baron’s internal resource estimates to a Society of Petroleum Engineers/ Petroleum Resources Management System-compliant standard, which will include a probabilistic estimate of resources and revised risk factors.

As previously reported, Baron Oil had also been exploring possible projects in Peru. However, the company recently unveiled plans to relinquish its licence in Peru and leave the country, stating it had been frustrated in its attempts to access the area in order to carry out operations.

In August 2021 Baron Oil executed a farming agreement which increased its interest from 15% to 32% in P2478, located just off the coast of Scotland. The P2478 licence contains the Dunrobin prospect which consists of large shallow rotated fault blocks which are mapped mostly on 3D seismic data including candidate direct hydrocarbon indicators. The prospect is believed to be one of the few remaining undrilled UK North Sea targets of the order of 100 million barrels of oil equivalent (MMBOe).

Loss leading

Although the price of oil and gas has jumped significantly, getting it out of the ground is not a cheap business. In its last results, published 23rd August, Baron Oil reported a loss before taxation of GBP419,000 for 1H22, up from a loss of GBP117,000 for 1H21. The company reported a net loss of GBP1.1m for calendar year 2021. This was equivalent to a net loss per share of 0.003p in 1H22. However, the figures quoted a one-off cash gain of GBP302,000 partially due to its Peruvian exit.

The company had about GBP2.4m in free cash reserves at end 1H22, up from GBP1.7m at year end. Cash was bolstered by a GBP1.5m placement with its assets in Timor-Leste and Scotland worth around GBP383,000. Analysts have estimated Baron Oil’s cash burn of around GBP2m giving it around 14 months headroom from June 2022.

The company was awarded a six-month extension to contract year two for Timor-Leste TL-SO-19-16 PSC by Timor-Leste national authority, Autoridade Nacional do Petróleo e Minerais, earlier this month. The extension kicks the can of whether to commit to drilling on TL-SO-19-16 PSC down the road to June 2023 and if Baron’s exploration goes according to plan, it hopes to have a well drilled in the third and final year of the initial phase of the Chuditch PSC.

Baron Oil to start drilling in 2024

Allenby Capital cover Baron Oil as an analyst. Peter Dupont, an analyst for Allenby wrote in a recent note: “This clearly provides further time to complete technical appraisal and interpretation work and, in all likelihood, secure a development joint venture partner. The caveat on drilling is that the technical studies being undertaken yield satisfactory results in terms of prospectivity. We think it should be noted here that based on published information using legacy 2-D seismic Chuditch is a large scale, low-risk gas play with estimated P50 of 591MMBOe.”

Baron Oil has stated previously that it is looking to farm out production on Chuditch and “…the company remains in talks with multiple potentially interested parties.”

It said in today’s statement: “The combination of the PSC extension, availability of the new reprocessed 3D seismic data, and the external validation of resources that are to be provided via the CPR will be of significant benefit to this process as we move into 2023.”

Dupont said: “After a decision to drill by June 18th, the next commitment would be a well final investment decision in the third and final year of the PSC. The licence commitment is an appraisal well and, based on previous intimations by Baron, the cost for the well would be around USD25m.”

He continued: “We believe that the earliest a well could be drilled at Chuditch would be 2Q24. This allows about a year for well planning, procurement, permitting and rig mobilisation.”

Despite what some would read as a positive announcement, Baron Oil’s share fell in trading today. At 12:00 were around 0.17p, down around 31% on opening at 0.35p. Share closed the previous week at 0.26p.

That said Baron Oil has offered a 156.4% year-to-date return and a 106.1% one-year return, giving the company a market capitalisation of GBP34.4m. The company has cited the performance of sterling against the US dollar as a negative influence. Shares have ranged between 0.05p and 0.36p over a 52-week period.

The market’s reaction could be attributed to the announcement potentially preceding a future announcement that may or may not say that Baron Oil is going to have to return to the market with a placement to raise further capital to progress its exploration activities and drill wells, thus diluting existing shareholders. It might just be profit-taking at an opportune moment. Despite this, Baron Oil is a company to monitor closely in the next few months.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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