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Repsol Finds Natural Gas Onshore Indonesia in Central Sumatra

Zacks Equity Research

Repsol, S.A. REPYY recently made a major natural gas discovery in Indonesia. The prospect, located onshore Central Sumatra, is expected to hold natural gas of around 1.5 trillion cubic feet, which translates to more than 250 million barrels of oil equivalent. Notably, the new find is located around 15 miles away from ConocoPhillips’ COP gas processing facility.

The discovery took place at the Kali Berau Dalam-2 well in the Repsol-operated Sakakemang production sharing contract (PSC). The company experienced well-control related issues after it started drilling last August. It re-entered the well in early February. Oil and gas regulator of Indonesia, SKK Migas, confirmed the discovery. The estimated amount of hydrocarbons in the prospect makes it the largest discovery in the country after Cepu discovery in 2001 made by Exxon Mobil Corporation XOM. Operator Repsol, a Madrid, Spain-based integrated energy company, owns 45% stake in the discovery, partnered by Petronas and Moeco with respective interests of 45% and 10%.

The discovery is expected to improve Repsol’s operations in the country. The company holds mineral rights for five exploration and production blocks in the country. Its net production from Indonesia in 2017 totaled 40,881 barrels of oil equivalent per day.

The new find by Repsol can boost the growing interest in the region. Repsol, ConocoPhillips and state-run Pertamina are currently competing to secure new exploration and development contracts in the country, per Andrew Harwood, the research director of Wood Mackenzie. The recent discovery will further fuel competition. ConocoPhillips’ PSC to develop the Corridor Block is expected to expire in 2023. Hence, a new finding in the region can certainly intrigue the energy major. Notably, Repsol holds 36% stake in the Corridor block.

The lack of new investments and diminishing production in the country has triggered the government to encourage explorations. The recent finding will support the efforts undertaken in this regard.

Zacks Rank and Another Stock to Consider

Currently, Repsol carries a Zacks Rank #2 (Buy). Investors interested in the energy sector can opt for another top-ranked stock as given below:

Argentina-based YPF Sociedad Anonima YPF is an integrated energy company. Its bottom line for 2018 is expected to increase 29.5% year over year. The company delivered average positive earnings surprise of more than 200% in the trailing four quarters. The stock currently has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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