Buru executive chairman Eric Streitberg told Energy News this morning that an asset swap between the partners was the "right deal at the right time".

 

The months-long negotiations explain delays by the joint venture in delaying announcing its 2017 work program.

 

Streitberg confirmed the scale mismatch between the two companies was one of the major drivers, and said the transaction was "logical" as it would free Buru from the significant costs involved in the attempt to develop the unconventional potential of the Valhalla-Asgard trend, in what is already one of the most costly onshore basins to explore in the nation.

 

"It basically gives each of us the ability to get on and do the things that we are good at," he said.

 

Mitsubishi will take on 100% of EP 371, which contains the play opening Asgard-1 and Valhalla North-1 wells, where there is a 2C resource of 1.5Tcf, with a path to 3Tcf.

 

In return it is handing back its 50% interests in most of the other permits: the Ungani licences L20 and L21, and its interest in EPs 391, 428, 431 and 436 - areas covered by the state development agreements.

 

Mitsubishi will also gain Buru's half share of STP-SPA-0065 and STP-AAA-0031, applications that that target the extension of the promising but controversial basin-centred gas play.

 

The pair will continue to share their interests in the Fitzroy blocks [¬EP 457 and EP 458] that contain the heart of the prospective Ungani Trend, although exploration to date has failed to prove up a commercial follow-up to date.

 

Critically, the deal delivers Buru 100% of the soon-to-be restarted Ungani oil field. 

 

"We have a cash generating asset which is very meaningful for us, but which is relatively small corporate significant to Mitsubishi," Streitberg said.

 

He said Buru wasn't being abandoned by its much larger, much richer partner, and painted the deal as allowing "each company to achieve their corporate objectives by focusing on the areas where they have the most appropriate technical and commercial capability".

 

The pair has also agreed to terminate Mitsubishi's Ungani funding agreement and marketing agreements, once Mitsubishi pays its share of the Ungani restart costs, around $1.5 million. 

 

While some shareholders may be concerned Buru had sold the farm, Streitberg said that was not the case, and shareholders seemed to agree, with Buru shares shooting up almost 20% this morning to 19.5 cents.

 

"This transforms the way we do our business," he explained.

 

The company has no future exposure to the substantial costs needed to prove up the Laurel wet gas play, but it does retain "quite a lot of exposure" to the gas potential via the western gas province, including the Yulleroo gas-condensate field, Streitberg explained.

 

Recent work at Yulleroo has been slow, and has effectively stopped pending the WA government's plans for a moratorium on fraccing, but Streitberg said work would not begin until after the review is completed.

 

Streitberg said Buru could plan its gas strategy at that time.

 

Buru has also defined a number of conventional gas targets, such as Ophir, which had been considered a focus of the 2017 work program, but those will be downgraded as the company focuses on more readily commercialised oil.

 

Buru hasn't taken a royalty as part of the deal, and Streitberg told Energy News that was "never considered" because of the complexity of negotiating a two-way royalty over the swapped assets that would not be appropriate.

 

Buru will also provide Mitsubishi a range of services, including community engagement, liaison and wellsite maintenance, although Energy News understands Mitsubishi will skill up its own team locally once it begins to run operations.

 

With 100% in most permits, Buru was in a good position to consider taking on partners, depending on the performance of Ungani and the company's cash balance, Streitberg said.

 

Mitsubishi's Canning Basin moves come after it flagged a reduction of its interest in Indonesia's Medco Energi this month.

 

The diversified conglomerate is also considering a tag-along offer made by Yancoal for its 32.4% stake in several Hunter Valley coal mines, after the Chinese-backed company completed a takeover of Rio Tinto's Coal & Allied subsidiary this week. 

 

Streitberg will present an overview of Buru's new oil-focused strategy at the company's annual general meeting on May 31, with the short-term focus likely to be on restarting Ungani and generating cash to keep the company running and pay its debts. 

 

Buru has cash of around $20 million plus debts to Alcoa of $12.5 million that are due June 30, 2018.