Indonesia Energy Corp Ltd annual report, Q4 FY2022

Indonesia Energy Corp Ltd — Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2022; filed May 1, 2023. The filing is an annual report, not a quarterly filing. Indonesia Energy Corporation Limited is a Cayman Islands holding company focused on upstream oil and gas operations in Indonesia and is listed on NYSE American under INDO. It operates the producing Kruh Block through a KSO with Pertamina and holds the exploratory Citarum Block under a gross-split PSC. The company had 10,142,694 ordinary shares outstanding at December 31, 2022.

Financial and Operating Highlights

Metric	2022	2021	Change
Revenue	$4.10 million	$2.45 million	Up 67.1%
Oil production	62,466 barrels	60,637 barrels	Up 3.0%
Average ICP price	$96.94/bbl	$67.02/bbl	Up 44.6%
Lease operating expenses	$2.95 million	$2.49 million	Up 18.5%
Depreciation, depletion and amortization	$1.14 million	$0.81 million	Up 40.6%
General and administrative expenses	$4.60 million	$5.25 million	Down 12.3%
Loss from operations	$4.60 million	$6.10 million	Improved
Net loss	$3.12 million	$6.08 million	Loss reduced 48.7%
Basic and diluted loss per share	$0.35 loss	$0.82 loss	Improved
Net cash used in operating activities	$3.21 million	$3.55 million	Improved
Capital expenditures and investing cash use	$5.42 million	$2.76 million	Up 96.3%

Despite improved revenue and a smaller net loss, the company remained loss-making and generated negative operating cash flow. Oil and gas producing operations, before corporate overhead and interest, generated a reported result of approximately $4,426 in 2022 versus a loss of $850,791 in 2021.

Balance Sheet and Liquidity

Cash was $5.90 million at December 31, 2022, compared with $0.60 million at December 31, 2021.
Total cash and restricted cash was $7.40 million, including $1.50 million restricted as collateral for a Citarum-related bank guarantee.
Working capital was $6.65 million and accumulated deficit was $36.94 million.
Total liabilities were $3.25 million and shareholders’ equity was $17.32 million.
The company had no outstanding bank loan or third-party long-term loan at year-end. It reported $52,143 of remaining convertible-note carrying value and $1.39 million of warrant liabilities.
Management disclosed substantial doubt about the company’s ability to continue as a going concern, although it concluded that planned financing and liquidity measures were probable to mitigate that uncertainty.

Material Changes Versus the Prior Period

Revenue increased primarily because the average ICP rose 44.6% and production increased modestly.
Production rose despite natural reservoir decline, with new wells K-25, K-26 and K-27 partly offsetting declines from existing wells.
Operating costs increased due to additional equipment rentals, well stimulation and fracturing, water-treatment and environmental systems, and pumping and power equipment.
DD&A increased because of additions associated with K-27 and K-28 and lower estimated proved reserves.
Other income increased substantially, mainly because of a $2.88 million decrease in the fair value of warrant liabilities. This was a non-operating and potentially volatile accounting benefit.
Cash flow from financing was $12.93 million, including $8.59 million from L1 Capital convertible-note and warrant financing, $1.95 million from warrant exercises and $4.37 million of net ATM offering proceeds.
Shares outstanding increased from 7,447,955 to 10,142,694, reflecting ATM issuance, conversion of $9.90 million of L1 Capital notes into 1.65 million shares, warrant exercises and other equity issuances.
Gross proved reserves declined from 3.25 million barrels to 2.06 million barrels, primarily due to revisions, production and rescheduling of development activity. Net proved reserves declined from 1.52 million barrels to 1.18 million barrels.

Operations, Outlook and Unusual Items

Kruh Block

Kruh produced 62,466 barrels in 2022. Six producing wells were reported at year-end; K-27 was producing approximately 34–38 barrels per day, while K-28 remained subject to testing and completion.
K-28 encountered significant gas and wellbore instability, requiring a sidetrack. The company expected testing in the first half of 2023 and production in the second half of 2023.
The company plans to conduct seismic acquisition, processing and interpretation during 2023, defer new drilling for approximately the next 12 months, and resume drilling in 2024.
Management continues to target 18 new Kruh wells by the end of 2026, including 14 additional wells after the four wells completed as of the filing date. Estimated future costs for 14 planned proved undeveloped wells were $21 million, excluding other production-facility costs.
Management was negotiating a possible five-year extension of the Kruh KSO from May 2030 to May 2035. The filing states that discussions remained ongoing and no extension had been finalized.

Citarum and Rangkas

Citarum remained an exploration asset with no reported production or proved reserves. Planned work includes geological and geophysical studies, 2D seismic and future exploration drilling.
The Citarum PSC requires relinquishment of portions of the contract area under specified conditions and could require retention of no more than 20% of the original area after the sixth contract year, subject to exceptions for discovered petroleum.
The company estimated future Citarum commitments of $39.25 million, including seismic, geological and geophysical work and drilling.
The Rangkas Area remained a potential opportunity without a completed tender or PSC award.

Financing, Guidance and Risks

L1 Capital converted $9.90 million of $10.00 million principal into shares at $6.00 per share. At year-end, 442,240 L1 warrants remained outstanding, generally exercisable at $6.00 per share, creating potential dilution and selling-price pressure.
The company had an ATM program permitting up to $20 million of gross share sales; 2022 net proceeds were $4.37 million.
Management expected 2023 oil prices to remain volatile but believed higher prices could improve revenue, liquidity and access to capital. The filing does not provide formal revenue, earnings or production guidance.
Management stated that no new drilling would be planned for the next 12 months unless additional ATM proceeds or warrant exercises were received; the financial statement notes refer to no new well drilling activity until May 2024.
Chief Executive Officer and Chairman Wirawan Jusuf agreed to provide up to $2 million of debt support to meet obligations for at least the following 12 months.
The company identified a material weakness in internal control over financial reporting related to insufficient personnel with appropriate U.S. GAAP and SEC reporting expertise. Management concluded that disclosure controls and procedures were ineffective at December 31, 2022.
Key risks include dependence on a single producing block, a single customer and Indonesian government counterparties, oil-price volatility, reserve-estimation uncertainty, drilling and permitting delays, capital-raising and dilution risk, Indonesian regulatory and political risk, environmental and abandonment obligations, and potential future inability to fund development.

Most Important Facts for Investors to Verify

Whether the company can generate positive operating cash flow without continued equity or debt financing.
The status and terms of the proposed Kruh extension to May 2035 and whether Pertamina has approved it.
Final testing, completion and sustainable production rates for K-28, and actual performance of K-27 versus management’s expectations.
The 2023 seismic program results and whether they support the planned 2024–2026 drilling campaign.
The current balance of L1 Capital debt, remaining warrants, conversion or exercise terms and potential dilution from the ATM program and other securities.
Whether the material weakness in internal control has been remediated and whether additional reporting deficiencies are identified.
The company’s ability to satisfy approximately $3.31 million of 2023 commitments and the disclosed $101.16 million of commitments for 2025 and beyond.
The reliability of proved-reserve estimates, which were prepared internally and were not reviewed by independent petroleum engineers.
Actual cash availability, including the distinction between unrestricted cash and $1.50 million of restricted cash.