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Andalas Energy & Power (ADL.L)
Speculative Buy at 0.06p
Target Price: 0.20p
Andalas is a wellhead gas power plant developer focused on the Indonesian island Sumatra. It’s working with Indonesia’s National Oil Company (Pertamina), and a division of state-owned construction company PT PP (Persero). Together they are developing gas power projects where grid infrastructure is short of electricity.
Andalas’ relationship with Pertamina was established in 2016 through a MOU designed to “fast-track commercialisation” of marginal gas fields. Pertamina will be responsible for delivering the gas, Andalas and partners such as PT PP will be responsible for developing the power facility using modular plants and selling power to the national power utility (PLN).
Management is very experienced in Indonesian gas and has a long-standing relationship with Pertamina. This relationship underpins the investment case. Also key is Sumatra’s gas reserves, low electrification and high priority policy to support power projects. Andalas provides unique, low-cost exposure to Indonesia’s fast-growing power sector and we recommend a Speculative Buy.
Beaufort Securities acts as corporate broker to Andalas Energy & Power plc
Andalas Energy & Power (ADL) signs first Indonesian wellhead IPP consortium agreement with state-owned enterprise
Andalas Energy and Power plc (AIM:ADL) is pleased to announce that it has signed a legally binding Consortium Agreement with PT PP Energi, a subsidiary of PT PP (Persero) Tbk, the Indonesian state owned construction and engineering company, to develop the Jambi-1 30+MW independent gas-fired wellhead power facility in Jambi Province, South Sumatra, Indonesia and to procure gas from Pertamina, the global fortune 500 national oil company.
The Agreement represents a major milestone for Andalas as it is a binding agreement to develop the first of the three projects that were planned in the Framework Agreement signed between the Company and PPE on 17 July 2017.
- Andalas (49%) and PPE (51%) to co-develop Jambi-1 wellhead power project with first power targeted for end 2019
- The proposed facility will be a minimum of 30MW and is expected to generate revenue in excess of US$10m per annum (gross) for 20 years
- Next steps for Jambi-1 involve finalising the gas purchase terms, grid study evaluation and commencement of a FEED study
- Andalas and PPE will review project financing options with PPE’s existing Indonesian and international banking relationships
- Andalas has presented a further two projects to PPE in accordance with its obligations under the Framework Agreement and further updates will be provided as appropriate
David Whitby, CEO of Andalas Energy & Power, commented, “This Agreement is a value trigger event for Andalas. With our internal forecasts indicating project revenue in excess of US$10m per annum, the Jambi-1 project has the potential to transform the business and sets the platform to develop further power projects in tandem with PPE.
“PPE is a strong and motivated partner to Andalas, being the power division of PTPP, the state owned entity. Since 2012 the PTPP group has constructed over 14 power plants for PLN, the state electricity company, and we therefore believe their participation strengthens the consortium’s ability to deliver in the Jambi-1 project.
“Our work to date has identified a significant number of potential projects for development, with PPE, Pertamina and also with others. We are therefore confident that Jambi-1 will be the first of a series of similar opportunities for Andalas, as we seek to roll out our standardised gas to power development model and rapidly scale up the business.”
Overview of Jambi-1 Wellhead Independent Power Producer Project
Andalas and PPE have agreed to develop an independent gas-fired power facility in the province of Jambi, Sumatra, Indonesia. Jambi-1 was selected as the first project following detailed technical evaluation and due diligence.
A preliminary assessment of the Jambi-1 project indicates a project with total installed capacity of 30MW base load with potential to offer PLN the opportunity to purchase additional generating capacity subject to negotiation. The precise size and configuration of the facility will be determined as part of the PLN procurement process and front-end engineering and design.
The power facility will be located adjacent to the proposed central processing facilities for the gas field supplying the project. The gas field is currently in production and a preliminary location has been proposed, which is located to the north-west of the two nearest substations. Previous studies have indicated that these substations have existing capacity to take power from this project.
Andalas and PPE propose to sell the power generated by the project to PLN.
The project is expected to qualify for direct appointment (i.e. without public tender) under Regulation No. 11/2017 (see prior announcement dated 27 February 2017). The power price under direct appointment is agreed with PLN through an open book negotiation that determines the price based on the capital and operating costs of the project and an economic return for the owners. The forthcoming FEED study is designed to provide the various cost components for the open book negotiation.
There are a number of key contractual, technical and financial project milestones to be achieved prior to the consortium making its final investment decision. The consortium will commence execution of these milestones immediately, starting with a detailed project scoping study and the selection and appointment of the FEED engineer. Completion of FEED, which is the pre-curser to FID and construction, is being targeted for H22018. The Company will make further announcements on milestones in due course.
Consortium Agreement Terms
The key terms of the consortium agreement provide:
- PPE and Andalas establish a consortium for the purpose of developing an IPP facility;
- PPE shall have 51% and Andalas shall have 49% participation interest in the IPP project;
- The IPP facility shall be located at the wellhead;
- The parties will seek regulatory approval for the construction of the IPP facility in accordance with Regulation No. 11/2017 which provides that power projects may be procured without public tender if they meet certain requirements;
- Each party shall bear its own internal costs but third party costs shall be shared by the parties in proportion to their respective participation interests.
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (‘MAR). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.
For further information, please contact:
|David Whitby||Andalas Energy and Power Plc||Tel: +62 21 2783 2316|
|Sarah Wharry||Cantor Fitzgerald Europe
(Nominated Adviser and Joint Broker)
|Tel: +44 20 7894 7000|
|Jon Belliss||Beaufort Securities Limited
|Tel: +44 20 7382 8415|
|St Brides Partners Limited||Tel: +44 20 7236 1177|
Notes for Editors:
PT PP (Persero) Tbk (“PTPP”) – Indonesia’s state owned engineering and construction group
PTPP is the parent company of PT PP Energi (“PPE”). PTPP, is an Indonesian state-owned enterprise that is listed on the Indonesian Stock Exchange with a market capitalisation of approximately US$1.4 billion and generated revenue of US$1.2 billion in 2016. The PTPP group is one of the largest construction and investment groups in Indonesia and is considered a preeminent engineering procurement and construction (‘EPC’) contractor of Indonesian independent power producer projects. PTPP group has a strong relationship with the national power company, PLN, having constructed 14 power projects for PLN totalling 2,168 MW since 2012.
PT Pertamina (Persero) – Indonesia’s World Class National Oil Company
Today Pertamina is ranked 230 on the Global Fortune 500 of companies generating over US$41 billion in revenue and with some US$45.5 billion in assets in 2015. It has interests in over 230,000 square kilometres of acreage, has over 5 billion barrels of oil equivalent (‘boe’) in Proven + Probable (2P) Reserves, and in 1H 2016 its production reached 640,000 boe per day, equating to over 50% of Indonesia’s total hydrocarbon production.
Pertamina’s business is fully integrated and includes a significant power business. Pertamina are the lead developer of the recently approved Jawa-1 (1,760MW) power plant and have a further 235 MW of geothermal power plants in operation or being commissioned throughout Indonesia.
PT PLN (Persero) – Indonesia’s National Utility
PLN is a state-owned company responsible for the majority of Indonesia’s power generation. It has exclusive powers over the transmission, distribution and supply of electricity to the public and it is responsible for the procurement of independent power production.
PLN employs circa 51,000 employees across the archipelago and PLN’s total generating capacity (produced by many different plants across Indonesia) at 31 December 2015 was reported at around 40,265MW.
PLN is focusing their efforts and investments to fulfilling the Governments ambitious targets of adding 35,000 MW of generating capacity by 2019 in order to increase the electrification ratio of Indonesia to levels comparable with other ASEAN nations.