Indonesia Energy Corporation Limited — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. The filing is an annual report, not a quarterly report, although the request identifies 2020 Q4. Financial statements are presented in U.S. dollars under U.S. GAAP.
Business context
Indonesia Energy is a Cayman Islands holding company focused exclusively on Indonesian upstream oil and gas activities. Its principal producing asset is the Kruh Block in South Sumatra, operated under a Pertamina KSO through May 2030. Citarum Block in West Java is an exploration-stage gross-split PSC. The Rangkas Area remains a potential future exploration opportunity and had not yet been awarded.
All reported revenue in 2020 was generated by the Kruh Block. The company had 7,407,955 ordinary shares outstanding at December 31, 2020 and trades on the NYSE American under “INDO.”
Key financial and operating metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $1.981 million | $4.183 million | Down 52.65% |
| Lease operating expenses | $2.018 million | $2.474 million | Down 18.45% |
| Depreciation, depletion and amortization | $0.699 million | $0.877 million | Down 20.28% |
| General and administrative expenses | $6.534 million | $2.434 million | Up 168.42% |
| Operating loss | $7.270 million | $1.602 million | Materially wider |
| Net loss | $6.952 million | $1.674 million | Materially wider |
| Basic and diluted loss per share | $0.94 loss | $0.28 loss | Worsened |
| Net cash used in operating activities | $5.186 million | $0.440 million | Higher cash burn |
| Net cash used in investing activities | $0.357 million | $1.046 million | Lower outflow |
| Net cash used in financing activities | $1.125 million | $13.124 million provided | Shifted to outflow |
Operating margin was approximately negative 367% in 2020 versus negative 38% in 2019; net margin was approximately negative 351% versus negative 40%. These calculated margins reflect the company’s reported revenue and expenses.
- Oil production declined 20.29% to 72,524 barrels from 90,989 barrels in 2019.
- Average Indonesian Crude Price declined 39.28% to $37.58 per barrel from $61.89.
- Average production cost increased to $27.82 per barrel from $21.34.
- Cash and cash equivalents were $6.903 million; restricted cash was $2.500 million.
- Total current assets were $11.241 million and current liabilities were $1.828 million, producing working capital of $9.414 million.
- Total assets were $15.576 million, total liabilities were $3.218 million, and shareholders’ equity was $12.358 million.
- Debt comprised a $0.980 million bank loan and a $1.000 million long-term third-party loan. The third-party loan bears interest at 1.5% and matures May 22, 2023.
Material changes versus the prior comparable period
- Revenue declined by $2.203 million because both production and oil prices fell.
- Lease operating expenses decreased, but the reduction was insufficient to offset lower revenue.
- General and administrative expenses increased by $4.100 million, primarily due to salaries, share-based compensation, professional fees, directors’ and officers’ insurance, and travel.
- Share-based compensation increased materially to $3.007 million from $0.248 million.
- The company moved from substantial financing inflows in 2019, including approximately $13.65 million of IPO proceeds, to net financing outflows in 2020 and repaid $1.0 million of the third-party loan.
- Kruh operations transitioned from the TAC to the KSO in May 2020. The KSO increased the cost-recovery cap from 65% to 80%, introduced non-shareable oil provisions, and reset the prior TAC cost-recovery balance to zero.
- Kruh’s reported gross proved reserves decreased from 4.620 million barrels to 4.393 million barrels in the primary reserves table; reported net proved reserves were 2.632 million barrels at December 31, 2020.
Guidance, outlook, risks and unusual items
Management planned 18 Kruh development wells over 2021–2023, with five wells in 2021, six in 2022 and seven in 2023. The company commenced drilling in March and April 2021 after COVID-19 and permitting delays. It expected approximately $27.0 million of future well costs under the Kruh plan, excluding certain production-facility costs. These production estimates are forward-looking and are not assured.
Citarum’s planned work program included geological and geophysical studies, 2D seismic, a first exploration well, subsequent 3D seismic and delineation wells. Citarum commitments totaled $34,653 for 2021, $3.535 million for 2022 and $35.8 million for 2023 and beyond. Kruh commitments totaled $11.875 million, $13.863 million and $36.405 million for those periods, respectively. Total disclosed commitments were approximately $101.5 million.
The independent auditor included an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern. Management expects to fund operations and capital needs through operating cash flow, potential equity or debt financing, Indonesian bank facilities and anticipated support from its principal shareholder, but there are no assurances that financing will be available on acceptable terms.
- COVID-19, weak oil prices and energy-market volatility reduced demand, production economics, revenue, liquidity and access to capital.
- The company is highly concentrated: 100% of revenue came from Kruh and accounts receivable were concentrated with Pertamina.
- Oil and gas reserves were prepared internally and were not estimated or reviewed by independent petroleum engineers.
- 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 also concluded that disclosure controls were ineffective.
- Regulatory, permitting, contract-relinquishment, environmental, abandonment and site-restoration obligations may increase costs or delay operations.
- Lower oil prices could reduce reserves, impair assets, make production uneconomic and limit the company’s ability to finance drilling.
- Principal shareholder Maderic Holding Limited, controlled by the chairman and CEO, held approximately 70.3% of the shares as of May 17, 2021, creating significant voting concentration.
Most important facts for investors to verify
- Reconcile the filing’s inconsistent operating cash-flow disclosures: the consolidated cash-flow statement reports $5.186 million used in 2020, while another liquidity discussion references $5.572 million.
- Reconcile reserves disclosures: the primary reserves table reports 4.393 million gross and 2.632 million net proved barrels, while supplemental reserves tables contain different proved-reserve totals.
- Assess whether cash, restricted cash and available financing are sufficient to fund the Kruh and Citarum commitments while addressing the going-concern uncertainty.
- Verify actual production, drilling results, costs and reserve revisions for the 2021 Kruh drilling program.
- Evaluate Pertamina’s payment timing and the economic impact of the KSO’s non-shareable oil and cost-recovery provisions.
- Monitor remediation of the material weakness and whether disclosure and financial reporting controls become effective.
- Review potential dilution from 637,500 outstanding management options and any future equity financing.