Major Milestone: All Mako Gas Field Production Secured for Indonesian Domestic Market
Conrad Asia Energy (ASX: CRD) has achieved a pivotal breakthrough in its development strategy with the signing of a binding gas sales agreement with Conrad Asia Energy with PT PLN Energi Primer Indonesia (PLN EPI), a wholly owned subsidiary of Indonesia's state-owned electric utility company. The agreement secures the sale of all gas produced from the Mako Gas Field for domestic Indonesian use through January 2037.
This strategic agreement covers a total contract quantity of 392 TBtu with allowance for sales up to 111 Bbtud (equivalent to approximately 111.9 mmscfd). The deal encompasses the entirety of Mako's 2C Contingent Resources of 376 Bcf, of which 192 Bcf are net attributable to Conrad (increasing to 231 Bcf following the completion of the Coro transfer).
In a significant advantage for Conrad, PLN EPI will finance and build the connecting pipeline infrastructure from the West Natuna Gas line to Pemping Island and onward to Batam, with Conrad bearing no costs related to pipeline construction.
"The gas sales agreement with Conrad Asia Energy is a significant milestone both in the development of Conrad and in our progress to bringing the Mako Field into production. The signing of the GSA underpins the financial viability and crystallises the value of the Mako Field," said Conrad Managing Director and CEO Miltos Xynogalas.
Premium Pricing Structure Secures Maximum Value
In a departure from standard Indonesian domestic gas pricing arrangements, the Mako gas price will be linked to the Indonesian Crude Price (ICP), an oil price index similar to Brent. This pricing mechanism will deliver economic results comparable to the previously approved mix of prices for export and domestic gas sales.
Notably, 100% of the gas produced from Mako will be sold at this premium price rather than the usual fixed domestic offtake price, representing exceptional value capture for Conrad shareholders.
The Indonesian Ministry of Energy and Mineral Resources has revoked its earlier allocation directive to sell Mako gas to PT Perusahaan Gas Negara Tbk and Sembcorp Gas Pte Ltd, with those GSAs now terminated in favour of this comprehensive agreement with PLN EPI.
Understanding Oil-Linked Gas Pricing in Indonesia
Oil-linked pricing for domestic gas contracts is uncommon in Indonesia, making the Mako GSA structure particularly significant. This pricing approach ties natural gas prices to oil price benchmarks (in this case, the Indonesian Crude Price), allowing gas prices to fluctuate with the broader energy market.
For investors, oil-linked pricing offers several advantages:
- Enhanced Profitability: Generally provides better economic returns compared to fixed domestic pricing
- Inflation Protection: Natural hedge against rising costs as energy prices typically correlate with inflation
- Project Viability: Improves investment economics and supports development financing
- Market Alignment: Reflects true market value rather than artificially capped prices
The Indonesian government's approval of this structure for Mako demonstrates its commitment to balancing domestic energy security with ensuring fair returns for producers – a positive signal for future gas development projects in the region.
"Approval of such a structure for Mako demonstrates the willingness of the Government of Indonesia to secure gas for local consumption whilst ensuring that the producer is not economically disadvantaged," noted Xynogalas.
Strategic Alignment with Indonesia's Growing Energy Demands
The gas sales agreement with Conrad Asia Energy positions the company perfectly to capitalise on Indonesia's surging energy demands, particularly on Batam Island, which is experiencing strong growth driven by power requirements for data centers.
PLN Persero, the parent company of PLN EPI, holds a BBB credit rating and is a massive energy provider with over 7,000 power plants supplying more than 89 million customers. The company sells over 288,000 GWh of electricity annually, providing Conrad with a secure, high-quality counterparty for this landmark agreement.
"Asia has the fastest gas consumption growth in the world and continues to progress on its energy transition path away from coal. We are extremely proud to participate in and support Indonesia's ever-growing exploitation of its natural gas resources," added Xynogalas. "The resultant strong gas demand in Indonesia underpins the tangible value of our discovered resources and provides a compelling investment thesis for Conrad."
PLN EPI: A Strategic Buyer
PLN EPI was established in September 2020 as a sub-holding of PLN Persero to ensure the availability of primary energy supplies through consolidating procurement and logistics processes. The company searches for primary energy sources and develops resilient ecosystems and strong supply chains.
As a buyer of energy sources including coal, gas, liquid fuel, and biomass, PLN EPI provides storage and logistics systems to supply all power plants in Indonesia. This arrangement gives them flexibility in balancing energy source requirements effectively and efficiently, making them an ideal partner for Conrad's Mako gas field development.
Accelerating Development and Future Expansion
The newly signed gas sales agreement with Conrad Asia Energy is expected to support pending farm-out arrangements in the Duyung Production Sharing Contract (PSC) and Final Investment Decision (FID) for Mako. Conrad currently holds a 76.5% participating interest in Duyung, which will increase to 91.5% following the completion of the previously announced Coro transfer.
Conrad is advancing negotiations on the potential sale or farm-out of a portion of its participating interest in the Duyung PSC. The timing for Mako's FID and first gas will be revised following the finalisation of these matters.
The company views Mako as just the first of many gas projects it aims to bring into commercial production from its existing portfolio, which includes four additional gas discoveries in Aceh.
Why Investors Should Follow Conrad Asia Energy
Conrad Asia Energy presents a compelling investment opportunity based on several key factors:
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De-risked Asset Base: The Mako field is one of the largest gas discoveries in the region with substantial 2C contingent resources now secured under a binding sales agreement.
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Premium Pricing Secured: The oil-linked pricing structure provides superior economics compared to standard domestic gas pricing arrangements.
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Strong Counterparty: PLN Persero is a BBB-rated, government-owned utility with massive scale and growing energy needs.
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Cost Advantages: PLN EPI's commitment to fund pipeline infrastructure eliminates significant capital requirements for Conrad.
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Growth Portfolio: Beyond Mako, Conrad holds additional gas discoveries in Aceh, creating a pipeline of development opportunities.
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Experienced Leadership: Conrad's board and management bring proven expertise from oil majors and mid-cap E&P companies, including Peter Botten, the founder and Chairman of Oil Search.
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Strategic Market Position: The company is perfectly positioned to supply Indonesia's rapidly growing energy demands as the country transitions away from coal.
For investors seeking exposure to Asia's booming natural gas market, Conrad offers a rare combination of resource certainty, premium pricing, and multiple pathways to value creation in one of the world's fastest-growing energy markets.
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