Andalas Energy and Power Plc - Operations Update

27 February 2017

Andalas Energy and Power Plc

(‘Andalas’, or the ‘Company’)

Operations Update

Andalas Energy and Power Plc, the AIM traded Indonesian focused energy company (AIM: ADL), is pleased to provide an update on its activities in Indonesia including the completion of a feasibility study for its first 60 MW wellhead gas to power project in partnership with Pertamina, Indonesia’s national oil company (‘Project’) in the Jambi province of Sumatra.  Andalas’ strategy is to develop a portfolio of at least five wellhead independent power producer projects (‘IPPs’) totalling 250-500MW of installed capacity fired with gas from proven fields.

Highlights

• Results of the feasibility study by PLN Enjinering (a division of state electricity company PLN) confirm the Project’s viability;
  • PLN Enjinering assumed construction could commence by Q4 2017 with a planned completion by end Q4 2018.
  • Additional generation capacity is required to satisfy power demand in the region;
  • Power produced by the Project can be efficiently connected to the PLN system and can be absorbed by the Sumatra power network without any operational problems
  • Power plant to be located in close proximity to the gas supply (‘Wellhead IPP’)
  • Gas supply is sufficient for 20-years of IPP operation
• Favourable New Regulations released 2 February 2017 are designed to fast track development
  • Three new regulations issued by the Ministry of Energy and Minerals classify integrated gas to power projects, such as Andalas’ first Project, as critical to the Government’s 35,000MW programme
  • PLN have confirmed that independent power projects located at the wellhead (‘Wellhead IPP’) are priority projects and that Andalas’ 60MW Wellhead IPP project is expected to be the first to be evaluated by PLN under the new regulations
• Ongoing work with Pertamina to build portfolio of gas to power projects
  • Following submission of the first project for approval, the initiation of four new projects is being targeted in 2017
  • Work to date highlights Jambi province as the preferred area of focus where a significant inventory of gas fields with Wellhead IPP potential has been identified by Andalas and Pertamina
  • Andalas and Pertamina will be conducting a 2-day strategy session in early March to review detailed studies of the potential gas fields for future projects
  • Each new project has the potential to deliver significant value to shareholders

Andalas CEO, David Whitby, said “The results of the feasibility study by PLN Enjinering for our first gas to power project alongside Pertamina confirm what we have long known: not only is the Project viable but it can also play a vital role in satisfying local demand for power.  Importantly, the Government recognises that Wellhead IPPs can play an important role in helping solve the country’s energy crisis. The recently announced new regulations have elevated Wellhead IPPs to a priority level within the Government’s 35,000MW programme.  The Government’s new regulation governing Wellhead IPPs is exactly aligned with Andalas’ gas to power strategy and I look forward to informing shareholders as we progress our first project through to approval.

“Andalas was established to focus on a niche but nonetheless important and scalable gas monetisation strategy to contribute to solving Indonesia’s power crisis at the local level.  In September 2016 we signed an agreement with Pertamina that gives us access to numerous potential gas fields, and the recent change in regulations from the Government, gives us confidence that we are working in a sector with enormous potential with a government that is continually renewing its support and emphasising the urgency with which it wishes to see projects on line.”

Feasibility Study

Andalas has now presented the feasibility study for the first Wellhead IPP project, which is to be located in the Jambi province of Sumatra.  The report was prepared by PLN Enjinering (a division of PLN), the highlights and conclusions of the feasibility study are as follows:

• PLN Enjinering assumed construction could commence by Q4 2017 with a planned completion by end Q4 2018.
• The report assessed the power demand in the region and concluded that the 60 MW generated will be in high demand, highlighting:
  • Power demand in the region requires additional generating capacity
  • Power demand will continue to exceed supply for the foreseeable future. Furthermore, electrical demand is projected to increase by some 12.5 % per annum in the Jambi Province.
  • Power produced by the project can be efficiently connected to the PLN system and the power generated can be absorbed by the network without any operational problems.
  • The power generated will be exported via a 150 kV transmission line to an identified sub-station.
  • The IPP would be located at the wellhead.

New Regulations

The Ministry of Energy and Minerals published on 2 February 2017, three new regulations intended to foster the efficient and timely development of new electricity generating capacity in the Republic of Indonesia.

Regulation 11 2017 Utilisation of Natural Gas for Power Plants is intended to improve the utilisation of natural gas in the mix of energy for the generation of electricity and to guarantee the supply of natural gas at reasonable and competitive prices for the electricity sector.  More particularly, the regulation provides that the procurement of wellhead power generation may be undertaken by direct appointment (i.e. without public tender). 

Project 2 and beyond

Pertamina have been quick to identify that the cooperation agreement with Andalas is a real opportunity to materially increase production of gas from its asset base.  As a result, there continues to be genuine enthusiasm to work to expand the number of projects under the cooperation agreement, which in tandem with the recent regulations are expected to accelerate the expansion of Andalas’ strategy.

Andalas and Pertamina are now focused on identifying the location of gas supply for the next Wellhead IPP projects.  Andalas is targeting the initiation of a further four new projects during the course of 2017 as it seeks to build towards its target of 500MW.  Work to date highlights that the first target area should be the Jambi province area, within which Andalas and Pertamina have identified a significant inventory of gas fields with IPP potential. 

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 ('RIS'), this inside information is now considered to be in the public domain.

**ENDS**

For further information, please contact:

David Whitby	Andalas Energy and Power Plc	Tel: +62 21 2783 2316
Sarah Wharry Craig Francis	Cantor Fitzgerald Europe (Nominated Adviser and Joint Broker)	Tel: +44 20 7894 7000
Jon Belliss	Beaufort Securities Limited (Joint Broker)	Tel: +44 20 7382 8415
Frank Buhagiar Susie Geliher	St Brides Partners Limited	Tel: +44 20 7236 1177