Conrad Asia Energy signs PT PAL contract for $320m Mako gas project

Conrad Asia Energy Ltd (ASX: CRD), through its majority-owned West Natuna Exploration Limited subsidiary, has signed a binding engineering, procurement, construction and transport contract with PT PAL Indonesia for the Mako gas project’s conductor support frame. The contract moves a critical offshore structure from front-end engineering into detailed design, material procurement and fabrication ahead of planned installation in Indonesia’s West Natuna Sea. Mako is being developed through six initial production wells connected to a leased mobile offshore production unit, with first gas targeted for the fourth quarter of 2027. The project has an estimated capital cost of US$320 million to first production and is backed by a long-term gas sales agreement with PT PLN Energi Primer Indonesia. The award strengthens the execution case for Conrad Asia Energy, but construction interfaces, financing discipline and the compressed offshore schedule remain decisive risks.

Why does PT PAL’s conductor support frame contract materially de-risk the Mako gas project?

The binding contract is strategically important because the conductor support frame is not an optional accessory added near the end of construction. It is a central structural component supporting the well conductors and topside equipment through which Mako’s offshore wells will be drilled, completed and connected to the production system. Without the structure, the drilling campaign and associated offshore facilities cannot move through their intended installation sequence.

PT PAL’s scope includes updating the front-end engineering work, finalising the support frame design, procuring non-owner-supplied materials, fabricating and assembling the jacket and topsides, and transporting the completed structure to the Mako offshore location. This converts a defined portion of Mako’s capital programme from preliminary planning into a legally binding execution package. It also places greater responsibility on one contractor for the compatibility between engineering, fabrication and offshore transportation.

The contract follows earlier awards covering the drilling rig and subsea infrastructure. By the end of the first quarter of 2026, West Natuna Exploration Limited had issued letters of award covering more than US$280 million, representing over 80% of Mako’s estimated development capital. The PT PAL agreement provides evidence that at least one of those previously selected packages has progressed into formal contracting rather than remaining a conditional procurement commitment.

For Conrad Asia Energy, this distinction matters. Small exploration and development companies often announce resource estimates, gas agreements and preferred contractors years before offshore construction begins. A binding fabrication contract commits the project to design decisions, supplier spending and physical manufacturing milestones, making delays or cancellations progressively more expensive.

The remaining investment question is not whether the contract is meaningful. It is whether all major packages can be integrated without creating design changes, standby costs or schedule disputes. Offshore projects rarely fail because one component was completely forgotten. They usually struggle because several individually reasonable components arrive at different times or do not fit together quite as neatly as the presentation suggested.

What role will the conductor support frame play in Mako’s six-well offshore development?

Mako’s first development phase is planned around six production wells rather than a large fixed processing platform. The conductor support frame will provide the structural arrangement required to support the conductors associated with those wells and connect the offshore drilling programme with the wider production system.

A conductor is the large-diameter pipe installed during the early stages of offshore well construction. It stabilises the upper part of the well, provides structural support and creates the foundation for subsequent casing and drilling operations. When several wells are developed from a shared offshore location, the frame must maintain accurate spacing, structural integrity and alignment under marine conditions.

The structure must therefore perform several functions simultaneously. It must withstand installation loads, support drilling and production equipment, tolerate waves and currents, and remain compatible with the mobile offshore production unit, flowlines, controls and future maintenance requirements. Dimensional errors or fabrication defects could affect the drilling sequence and create costly offshore modifications.

PT PAL will fabricate both jacket and topside elements in Indonesia. The jacket will form the supporting steel structure, while the topsides will accommodate equipment and interfaces above the waterline. Transportation engineering must also be completed because a structure that can operate offshore must still survive loadout, marine transport and installation.

The drilling programme has already been linked to the Admarine 502 independent-leg cantilever jack-up rig under a 180-day firm contract with the PT Pertamina Drilling Services Indonesia and PT ADES Drilling Indonesia consortium. The rig is expected to begin work in the second quarter of 2027, drilling six development wells and participating in installation of the conductor support frame. The frame must therefore be completed, transported and prepared in line with the rig programme, leaving little room for slippage between fabrication and offshore mobilisation.

How will the US$320 million Mako development move gas from the field into Indonesia’s power market?

Mako is being developed as a relatively lean offshore gas project that relies heavily on leased and existing infrastructure. The initial six wells will feed a leased mobile offshore production unit, avoiding the capital required for a large permanent processing platform. Sales gas will then travel through an approximately 59-kilometre, 18-inch pipeline to the KF platform in the neighbouring Kakap production-sharing contract.

From the KF platform, gas will enter the established West Natuna Transportation System for delivery into Indonesia’s domestic market. This infrastructure-led development plan is central to Mako’s economics because it reduces the amount of new processing and export infrastructure that must be constructed solely for the field.

The project contains gross 2C contingent resources of approximately 376 billion cubic feet. Under the announced post-farm-down structure, around 58 billion cubic feet would be attributable to Conrad Asia Energy through its economic interest in West Natuna Exploration Limited. The resource is relatively shallow, highly permeable and dominated by methane, characteristics that support high deliverability and a comparatively straightforward production concept.

The development is expected to supply gas at a plateau rate of approximately 111.9 million standard cubic feet per day. That volume is commercially relevant for Indonesia’s power sector, particularly around Batam and other electricity-demand centres where gas can support dispatchable generation alongside growing renewable capacity.

Mako will not transform Indonesia’s national gas balance by itself. Its value lies in bringing a fully appraised offshore resource into production through infrastructure that already connects the West Natuna basin with established markets. This reduces execution complexity compared with a remote greenfield development requiring a new liquefied natural gas plant or a long cross-country pipeline.

Can Conrad Asia Energy’s farm-down financing protect shareholders from another capital raise?

Conrad Asia Energy’s funding strategy is as important as the field-development design. In November 2025, West Natuna Exploration Limited agreed to farm out a 75% non-operated participating interest in the Duyung production-sharing contract to PT Nations Natuna Barat, part of Indonesia’s Arsari Group.

Under the transaction, PT Nations Natuna Barat will fund its own 75% share of development spending and carry West Natuna Exploration Limited’s retained 25% share through the first phase. The carried amount will operate as a project loan that is expected to be repaid from West Natuna Exploration Limited’s future production revenues rather than through an immediate equity contribution.

This structure materially reduces Conrad Asia Energy’s near-term funding pressure. Its share of the first-phase capital programme would otherwise have been approximately US$80 million before working capital and contingencies, a large commitment relative to the company’s market capitalisation and existing corporate resources.

The company has presented Mako as fully funded through first gas, including contingency and working-capital requirements. This reduces the probability of a major project-specific equity raising, although it does not eliminate corporate funding needs associated with overheads, exploration or Conrad Asia Energy’s separate offshore Aceh portfolio.

The carry model also changes the quality of Conrad Asia Energy’s future cash flow. Once production begins, part of its project revenue will be used to repay the carried development expenditure. Investors should therefore distinguish between gross economic entitlement and free cash available for dividends, exploration or debt reduction.

There is also counterparty exposure. The financing strategy depends on PT Nations Natuna Barat meeting development cash calls and maintaining its commitment through construction. A fully funded label is valuable only when funds arrive as scheduled and remain available if equipment prices or offshore costs exceed the budget.

Why does the PLN EPI gas sales agreement improve bankability while preserving oil-price exposure?

Mako’s gas is contracted to PT PLN Energi Primer Indonesia, the fuel-supply subsidiary of Indonesia’s state-owned electricity utility. The agreement extends until the Duyung production-sharing contract expires in January 2037 and covers the field’s entire planned gas volume at plateau sales of up to 111 billion British thermal units per day, equivalent to approximately 111.9 million standard cubic feet daily.

The contract provides the revenue visibility required to support final investment approval, contractor commitments and development financing. A field with a defined customer and multiyear sales arrangement is easier to fund than one dependent on finding buyers after construction is complete.

Pricing is linked to the Indonesian Crude Price rather than set entirely through a fixed domestic tariff. This gives Mako exposure to movements in oil-linked regional gas pricing while retaining the security of a government-backed domestic buyer. The confidential formula will determine how much upside and downside the project experiences as oil prices change.

The agreement also reflects a strategic change in market destination. Mako had previously been positioned partly as a source of export gas for Singapore, but Indonesia redirected the field’s supply toward domestic electricity demand. This increases Mako’s relevance to Indonesia’s energy-security policy while reducing reliance on cross-border export approvals.

Domestic allocation can also create tension between policy value and commercial return. Indonesia wants dependable gas for power generation at competitive prices, while project investors require returns sufficient to justify offshore construction. The oil-linked mechanism appears designed to bridge those objectives, but actual project economics remain sensitive to the undisclosed floor, ceiling and adjustment provisions.

How does the PT PAL award support Indonesia’s local-content and offshore fabrication strategy?

PT PAL Indonesia is a state-owned shipbuilding and heavy-engineering company with fabrication capabilities relevant to naval, commercial and offshore structures. Awarding the conductor support frame package to PT PAL keeps an important part of Mako’s industrial expenditure within Indonesia and supports the government’s local-content objectives.

Local fabrication can reduce transportation distance and allow project teams, regulators and suppliers to coordinate more closely. It also develops domestic experience that could be applied to future offshore gas, carbon-storage and renewable-energy infrastructure.

However, local content creates economic value only when it is matched by delivery performance. PT PAL must meet international offshore standards covering engineering assurance, welding, corrosion protection, structural testing and documentation. Delays or quality problems would affect the rig campaign and could undermine the economic benefit of domestic fabrication.

The award also broadens Mako’s Indonesian contracting base. The drilling package involves Pertamina Drilling Services Indonesia, the gas customer is part of PLN, the majority development investor is PT Nations Natuna Barat, and the structural fabrication package now sits with PT PAL. Mako is consequently becoming an increasingly Indonesian project rather than a foreign-led field selling gas primarily outside the country.

That alignment could improve regulatory and stakeholder support through construction. It also raises the need for disciplined governance between multiple state-linked, private and listed-company participants. National alignment can accelerate decisions, but it cannot make an offshore installation arrive on time merely by waving enthusiastically from the dock.

What do Conrad Asia Energy and Empyrean Energy shareholders actually own after the farm-down?

The ownership structure is more complicated than the headline 25% retained interest suggests. West Natuna Exploration Limited is expected to retain a 25% participating interest in the Duyung production-sharing contract after the PT Nations Natuna Barat farm-down.

Conrad Asia Energy owns 91.5% of West Natuna Exploration Limited, while Empyrean Energy plc (AIM: EME) holds the remaining 8.5% under the announced settlement and restructuring arrangements. This would give Conrad Asia Energy an effective project interest of approximately 22.875% and Empyrean Energy an effective interest of about 2.125%, assuming completion of the announced transfers.

Conrad Asia Energy remains the principal listed exposure because it controls the operator and carries the larger economic interest. Its business model is transitioning from exploration and appraisal toward production, with Mako intended to become the first cash-generating asset supporting the company’s wider Indonesian gas portfolio.

Empyrean Energy offers much smaller, more leveraged exposure. A 2.125% effective interest can still be meaningful relative to Empyrean Energy’s very small market capitalisation, but the company has less control over project decisions and limited financial capacity to absorb further corporate or development complications.

Both companies therefore benefit from the same project milestone in different ways. Conrad Asia Energy needs Mako to establish operating credibility and fund future growth. Empyrean Energy needs Mako to create value from an interest that has spent years moving through commercial negotiations, financing uncertainty and partner disputes.

How should investors read CRD and EME share performance after the PT PAL contract?

Conrad Asia Energy shares closed at approximately A$0.48 on June 22, rising about 7.9% during the session after the PT PAL announcement. The stock nevertheless remained down roughly 8.4% over five trading days and around 2% below its May 22 close of approximately A$0.49. Its 52-week range stood between A$0.40 and A$0.885, placing the shares about 46% below the annual high and only modestly above the low.

The daily increase indicates that investors welcomed the transition from contract selection into binding fabrication. The weaker five-day and 52-week performance shows that the market still discounts development risk, future cash-flow timing and the reduction in Conrad Asia Energy’s economic interest following the funding farm-down.

At approximately A$93 million of market capitalisation, Conrad Asia Energy remains a small-cap project stock. Its valuation will respond disproportionately to contractor awards, financing updates, schedule changes and evidence that the project can reach production without additional equity dilution.

Empyrean Energy closed at approximately 0.05 pence on June 22, unchanged during the session. The stock was about 9.1% lower than one week earlier and around 16.7% below its May 22 close, while its 52-week range was approximately 0.018 pence to 0.16 pence.

The lack of a strong Empyrean Energy reaction reflects both the small effective project interest and the company’s highly diluted capital structure. The stock remains capable of sharp percentage moves because of its low absolute price, but investors appear to require more decisive milestones such as offshore construction, well completion or first production.

In my assessment, the PT PAL contract improves the fundamental risk profile more than the immediate market valuation. It removes one execution uncertainty, but it does not yet prove that Mako will meet its budget, schedule or production forecast.

What construction, drilling and interface risks could delay Mako’s fourth-quarter 2027 first gas?

The most immediate risk is schedule coordination. PT PAL must complete detailed engineering, procure steel and other components, fabricate the structure and transport it offshore before the drilling rig reaches the relevant installation stage. A delay at the fabrication yard could leave an expensive jack-up rig waiting or force the project to resequence offshore work.

The drilling campaign presents subsurface and mechanical risks. Mako is fully appraised and has demonstrated strong reservoir characteristics, but six production wells must still be drilled and completed safely. Lost circulation, equipment failure, weather disruption or well-control issues could extend the 180-day firm rig programme.

The leased mobile offshore production unit is another critical interface. Its processing capacity, gas specifications, control systems and connection points must align with the wells, conductor support frame, subsea flowlines and export pipeline. Modifications or late delivery could delay commissioning even if drilling is completed successfully.

The 59-kilometre pipeline and tie-in to the KF platform create third-party dependency. West Natuna Exploration Limited must coordinate with the Kakap production-sharing contract operator and the West Natuna Transportation System to ensure that receiving infrastructure, metering and operating procedures are ready.

Cost control remains equally important. More than 80% of estimated capital has been covered by letters of award, but letters and contracts can still contain escalation provisions, reimbursable elements and exclusions. Offshore weather, fabrication changes and additional installation work could consume the project’s contingency.

The fourth-quarter 2027 target is achievable because Mako uses shallow-water, leased and existing infrastructure. It is also demanding because several major workstreams must converge over the next 18 months. The absence of a large permanent production platform reduces complexity, but it does not eliminate offshore project management.

Which milestones will show whether Mako has truly moved from funded plan to executable project?

The first milestone will be visible fabrication progress at PT PAL, including completion of detailed design, steel cutting, jacket assembly and topside integration. These activities will demonstrate that funding and engineering approvals are translating into physical infrastructure.

The second will be completion of the remaining definitive project contracts. Investors should watch for updates on the mobile offshore production unit, subsea equipment, pipeline installation and commissioning support.

The third will be confirmation that the PT Nations Natuna Barat farm-down and associated government approvals have been completed. The funding model relies on the agreed 75% participating interest and carry arrangements functioning as intended.

The fourth will be readiness of the Admarine 502 rig for its planned second-quarter 2027 mobilisation. Rig availability can become a critical constraint if an earlier drilling programme runs late or if regional offshore activity increases.

The fifth will be installation of the conductor support frame and successful drilling of the six production wells. This will represent the clearest transition from infrastructure preparation into field development.

The sixth will be completion and pressure testing of the export pipeline, followed by integration with the KF platform and West Natuna Transportation System.

The seventh will be conversion of Mako’s contingent resources into reserves through updated independent technical assessment. Reclassification would reflect the project’s improved commercial maturity and provide investors with a more conventional basis for valuation.

The final milestone will be delivery of specification-compliant gas to PLN EPI during the fourth quarter of 2027. Until then, Mako remains a funded and increasingly contracted development rather than a producing asset.

What are the key takeaways from Conrad Asia Energy’s latest Mako gas project contract?

• Conrad Asia Energy’s operating subsidiary has signed a binding contract with PT PAL Indonesia for Mako’s conductor support frame.
• PT PAL will complete detailed engineering, procurement, jacket and topside fabrication, assembly and offshore transportation.
• Mako’s US$320 million first phase will use six development wells connected to a leased mobile offshore production unit.
• Gas will travel through a 59-kilometre pipeline and existing West Natuna infrastructure for sale into Indonesia’s domestic market.
• First gas remains targeted for the fourth quarter of 2027 at plateau sales of approximately 111.9 million cubic feet per day.
• PT Nations Natuna Barat is expected to acquire 75% of the project and fund West Natuna Exploration Limited’s retained 25% share through a production-repayable carry.
• Conrad Asia Energy’s effective project interest is expected to be approximately 22.875%, with Empyrean Energy retaining about 2.125%.
• CRD shares rose about 7.9% after the announcement but remained roughly 46% below their 52-week high.
• Fabrication timing, rig mobilisation, mobile production unit readiness and pipeline integration remain the largest execution risks.
• Successful first gas would transform Conrad Asia Energy from a development-stage small-cap into an Indonesian offshore gas producer.