Jadestone Energy

I recently visited Jadestone’s flagship Akatara Gas Processing facility in Jambi province, Indonesia. Akatara is a state of the art facility producing gas, condensate and LPG from four well pads. The LPG is sold at the site (via trucking) into the domestic market where it is subsidised for local consumers, the condensate is also trucked from the site and the gas is piped through a 17km export pipeline where it joins the main regional pipeline to the buyer on Batam Island.

Indonesia

Indonesia is a politically stable country, the President is in the first year of a 5-year term with his Government focusing on economic development, improving quality of life with self-sufficiency in food production and energy. The country is very much a model for economic success, it has a young population with a median age of only 30 years and unsurprisingly driven by strong domestic consumption.

The result is that Indonesia has an enviable GDP growth of c.5%, sustained for several years, and given the strong demand domestically for power, along with the move away from coal, has concentrated on building a dynamic regulatory framework with existing upstream regulatory body SKK Migas partnering with PSC’s.

The upstream sector is well organised under the Ministry of Energy and Mineral Resources, the Directorate General of Oil & Gas (MIGAS) along with the Special Task Force for Upstream Oil & Gas Business. (SKK Migas)

Akatara Gas Processing Facility (AGPF)

The picture above shows the AGPF which has been a remarkable success story for Jadestone, the project received considerable support from the Government, the relationship between the project manager and the regulators is clearly excellent and bodes well for future growth on site or even building another plant.

The speed with which the processing facility was completed is a significant achievement in any terms, it was delivered in 26 months against normal expectations of some 36 months and with kit supplied from around the world has indeed been proved to be a ‘National Strategic Project’ as designated by SKK Migas. This will have done no harm at all to Jadestone for whom as I have said would like this to be the first of a number of similar projects.

The cartoon above shows how Akatara is designed, with the raw gas incoming from the well pads, it shows in considerable detail how the plant flows. The LPG stream, which is a key product given domestic consumers almost entirely use bottled gas for cooking and which is subsidised by the Government heads up the process. As described above the remaining gas is piped to the buyer on Batam Island and finally the condensate which is trucked from the AGPF but paid for at the departure gate.

Production

I have written above just how quickly the facility was built, as a ‘national strategic project’ and with excellent relationships with the regulators the above chart shows the 26 months from start to finish, a task that would normally take 36 months.

This is a highly telling chart, about a year after initial start-up, the scheduled summer maintenance shut-down was used as a debottlenecking project to increase the plant’s capacity. With the knowledge that the wells could produce more than the plant was processing the exercise was a success, the plant reached 7,000 boe/d and is now settled at approximately 6,800 boe/d and in the second half to date is producing at a level 13% up on the first half. The final tribute is that second half uptime is some 97.5%, a considerable achievement in itself.

Sales Agreements

The sales agreements above are clear and impressive, the gas is sold at a fixed price of $5.60/MMBtu (equivalent to $6/mcf) on a long term contract, which given the costs at Akatara, makes for excellent cash flow and de-risks Jadestone from any violent local price swings. There is upside should nominations allow and recent months indicate that that is possible.

The contract for LPG is also good for Jadestone, a shorter contract but still for five years and payment is guaranteed, the Governments subsidise domestic sales and there is upward scope on capacity. Finally condensate is sold at the plant, around 1,000 barrels a day and at local contracted prices, normally at around a discount, consisting of $8 to Brent (reflecting the condensate differential) with trucking costs also deducted to arrive at the realised price.

Reflections and recommendations post the visit

Company visits are too rare nowadays, they offer a real opportunity to report on a number of factors pertaining to a company’s assets and management from top to bottom. A visit to a particular asset is more than just a chance to ‘kick the tyres’ or to inspect the facilities, it is to see how, in this case, a new asset is performing.

The opportunity also exists to meet the on-site team at all levels, the workforce here are well educated and safety conscious, the head of the operation was pinched from JGC, the  EPC contractor that built the facility, no one knows every inch of the plant better than him.

We had a full presentation across all disciplines in the classroom from the whole team, Country Manager Mark Craig led the process but also Deputy Country Manager Andi Iwan Uzamah is clearly an inspiration and has an excellent relationship with the Ministry and the regulators. We also heard from safety, HR and the finance team who all presented and it was clear that they were fully on top of their portfolios.

As previously mentioned we had an extensive tour of the facility, it is indeed state of the art and it was a serious accomplishment to have built it in 26 months, debottlenecking it a year after first gas was also an achievement and with uptime since the May shutdown of over 97%.

The final and substantial benefit of a long company visit is that it gives us the opportunity to spend a great deal of time in the company of the senior members of the board, in this case we were accompanied by the CEO who joined earlier this year, Mitch Little and CFO Andrew Fairclough. This provided at least me with a fantastic opportunity, I had not met Mr Little before and a few days in his company was not to be missed as with Andrew Fairclough.

As it happens it turns out that Jadestone is in very good hands, Mitch Little is highly experienced and brings significant operational and management experience from over three decades in the upstream industry with Marathon. He has a good working relationship with Andrew Fairclough, they make a good team.

Conclusions on Jadestone

I have followed Jadestone since it came to the Aim market in 2018, it was considered to be a blue chip company and had an experienced and strong management team. As an Asia Pacific play it was deemed to have a good portfolio of assets and the shares rose sharply peaking at 108p in June 2022.

Jadestone now focuses on its strategic assets which are in Indonesia, with the Lemang PSC including the Akatara Gas Processing facility, Australia with the Stag, Montara and CWLH operations, Malaysia production from the PM323 and PM329 PSCs and the the Nam Duu and U Minh gas development project offshore Vietnam

It would be fair to say that going forward I think that the shape of Jadestone will be formed around the gas assets at Akatara and Vietnam where the FDP was submitted in March of this year and where approval is due before long and a gas sales agreement is under discussion.

The oil assets at Montara, Stag and CWLH remain core, indeed the Skua development well at Montara, despite overrunning on costs has initial production rates significantly ahead of expectations. But the oil part of the equation has fallen and will do so more as and when Jadestone increases fixed price gas production, such as at Akatara and which is also expected for the Vietnam development.

The success at Akatara is meaningful and in such good time, production of 6,800 boe/d is exactly 30% of the company guidance of 19,500-21,500 for this year.

The visit to Akatara was worthwhile in many ways, it is clearly a world class asset which has been built and brought onstream in record time. As I have said I believe that the company consider there to be adequate reserves at Lemang to be able to debottleneck the AGPF and having been such a success another new facility could be considered if there were any gas resources added from future drilling on the Lemang PSC.

With the excellent relationships at Ministry and Regulators, Jadestone are well placed and with the demand for gas to replace the old diesel and coal power in Indonesia the market is effectively guaranteed. With Vietnam coming through and the Australian oil assets performing well the growth story at Jadestone is there for all to see.

As the company move into 2026 they have a very strong management team led by Mitch Little and Andrew Fairclough, existing strong operational performance and careful portfolio selection means that there is plenty of upside which makes the shares significantly undervalued. Going into the new year I think that with Vietnam progressing well and the defensive nature of the fixed price element of the revenues, Jadestone might make a return to the Bucket List.

Original article   l   KeyFacts Energy Industry Directory: Malcy's Blog