Australia-listed Cue Energy Resources has entered into a A$7 million (US$4.86 million) two-year unsecured loan agreement with major shareholder New Zealand Oil & Gas (NZOG).

The deal is intended to support Cue’s exploration and development activities and to ensure sufficient working capital for the expected near-term periods of high expenditure.

Cue has E&D operations at its Amadeus Basin assets in Australia and on the Mahato and Sampang production sharing contracts in Indonesia under way or planned over the next 12 to 24 months to increase oil and gas production.

“While revenue is expected to remain strong at all assets throughout this period, significant forecast expenditure, risks of cost overruns and the expected timing of expenditure has led us to seek short-term financing,” Cue explained.

The key projects expected to require near-term financing include the ongoing PV-12 exploration well onshore Australia where slower than expected drilling could see costs escalate while at the Mereenie field, also onshore Australia, the joint-venture partners are considering six workovers and two infill wells during the 2023 financial year.

On the Texcal-operated Mahato block, 14 more wells are planned to be drilled on the PB oilfield over the next one to two years and additional processing facilities will also be constructed.

“Twelve of these [wells] are oil production wells which are expected to deliver revenue, however, the timing of costs and revenue is a consideration of this financing,” Cue added.

The company estimates its commitment expenditure for this development phase of the PB field onshore central Sumatra to be about A$13 million.

Final investment decision looming

Further expenditure is also envisaged on Medco Energi’s Sampang PSC, where the co-venturers expect in the coming months to take the final investment decision on the Paus Biru (Blue Whale) shallow-water gas field development.

Cue expects to incur development costs of about A$15 million in the 24 months to first gas following the partners’ sanction of Paus Biru.

“Cue has a number of exciting exploration and development projects within our portfolio, which are all aimed at increasing our oil and gas production,” chief executive Matthew Boyall said.

“[However], the current inflationary environment has the potential to impact planned costs. This loan will ensure Cue retains the financial strength to participate in not only our committed projects, but any other proposals which arise to increase production at our assets.”

The company had initially sought expressions of interest from Australian commercial banks for potential financing to meet its increase in E&P expenditure.

However, it became apparent that such traditional sources of funds would not be available to Cue — mainly because of the relatively small size of the amount required and the short-term nature of the company’s needs.

The NZOG loan is unsecured with an interest rate of 10% per annum fixed for the two-year term of the loan and a 1.5% establishment fee. Early repayments are allowed with no penalty.

NZOG is a related party of Cue, holding 50.04% of its shares.