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Chuditch earn-in could take Baron Oil shares to the next level


Baron Oil PLC (AIM:BOIL) has increased its shareholding in SundaGas from 33.3% to 85% and following the completion of an earn-in, the firm has increased its interest from 25% to 63.75% in the Chuditch production sharing contract (PSC) in Timor-Leste.

As Andy Yeo, CEO of Baron commented: “It is an exciting opportunity for Baron Oil and we are delighted that the earn-in arrangements are now completed.”

Reasons to be cheerful about Baron Oil

Baron Oil’s share price almost doubled at the news from 6p to 11p by Friday 23 April. And while this is only to be expected in such a notoriously volatile sector and we are yet to find out whether the firm will turn the project from prospective to contingent, there are a few reasons why this could be a genuine step forward for the oil and gas exploration and production company.

Firstly, in regional terms, this move is timely. Timor-Leste gas exploitation activity has been accelerating recently, and there are plans for the existing infrastructure to be extended. Baron Oil now has the potential to gain prospective exposure to the South-East Asian liquid natural gas (LNG) market where demand for LNG is forecast to exceed supply in the medium to long term.

First step in a new strategy for Baron Oil

From a company perspective, the earn-in represents the first step in a new strategy. The board has stated that it intends to acquire significant equity interests in oil and gas projects which present opportunities for high potential impact exploration and appraisal activity at low entry costs into established petroleum provinces.

In practice, it means SundaGas which has been investing in Timor-Leste opportunities for over five years, can now begin the 3D seismic reprocessing of the Chuditch discovery and get an up-to-date assessment of the true potential and of the viability of drilling an appraisal well as well as further exploration wells.

This area was originally drilled by Shell in 1998 – in a total of 26 days for US$8 million, encountering a 25-metre gas column in the Jurassic Plover formation on the flank of a faulted structure. According to Baron Oil, Shell’s mapping of available seismic data suggests that the Chuditch area may contain large quantities of recoverable gas.

The final results of seismic reprocessing are anticipated in the first quarter of 2022 as will the decision on whether to enter into a drilling phase anticipated in the fourth quarter of 2022. The potential drilling of high impact appraisal and exploration wells is anticipated in 2023.

£3 million fundraising launch

Baron has agreed to fund the remainder of the estimated US$3.5 million Chuditch work programme until November 2022 – including the licensing and processing of the 3D seismic data. To pay for this, the company has conditionally raised £3 million for a total of 6 billion new ordinary shares of 0.025p each at 0.05 pence per share. It also has cash reserves of approximately £1 million (as of 28 February 2021).

Baron’s other assets include a 100% interest in El Barco-X drilling project in Peru, a 15% interest in an Offshore Licence for Inner Moray Firth. However, with the company finances predominantly in the red and the Board anticipating that approximately 65% of the company’s 2021 expenditure will be applied to the Chuditch PSC project, Baron Oil has a lot riding on this.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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