Lion’s East Seram Farm-Out: A High-Stakes Bet on Bula Karang’s Success

Strategic Farm-Out Secures Funding and Reduces Risk

Lion Energy Limited (ASX, LIO) has taken a significant step forward in its Indonesian exploration campaign by executing a farm-out agreement with OPIC East Seram Corporation, a subsidiary of Taiwan’s CPC Corporation. This deal sees OPIC agreeing to fund 88% of the estimated US$5.6 million drilling cost for the Bula Karang exploration well, scheduled for the second quarter of 2026. In return, OPIC will earn an additional 15% interest in the East Seram Production Sharing Contract (PSC), leaving Lion with a 45% stake post-drilling.

This arrangement dramatically reduces Lion’s financial exposure to just US$0.7 million for the well, a welcome relief given the capital-intensive nature of oil exploration. The farm-out also leverages OPIC’s technical and financial capabilities, providing Lion with a strong partner for this high-impact project.

Bula Karang, A Prospect with Promising Potential

The Bula Karang prospect is a shallow Plio-Pleistocene carbonate reef located offshore Bula Bay, near the producing Bula Oil and Oseil fields, which have each yielded over 20 million barrels of oil. The prospect’s P50 prospective resource is estimated at 12 million barrels of oil, with a geological chance of success around 38%. Importantly, the well will be drilled from an onshore location targeting the offshore reef, a strategy that substantially reduces drilling costs compared to conventional offshore wells.

The well design also supports early production potential, allowing for quicker monetisation if the exploration is successful. The proximity to existing infrastructure on Seram Island; including refining, storage, and export facilities; further enhances the commercial viability of any discovery.

Financial and Strategic Implications

Lion’s recent sale of its stake in the Seram Non-Bula PSC for US$1.2 million underwrites its funding obligations for the Bula Karang well, ensuring the company is well-positioned financially. The farm-out deal not only secures majority funding but also retains significant upside exposure for Lion through its 45% interest in the PSC. Should the well prove successful, it could extend the PSC term by 20 years, opening the door for further appraisal and exploration activities.

Chairman Tom Soulsby described the agreement as a “great outcome,” highlighting the potential for Bula Karang to be a “game-changer” for Lion. The company is now focused on planning and executing the drilling campaign, with numerous follow-up prospects already identified for potential development.

Looking Ahead

While the farm-out deal mitigates much of the financial risk, the drilling success remains uncertain, with the Indonesian government’s approval still pending. Cost overruns beyond the capped US$5.6 million will be shared between Lion and OPIC, introducing some exposure. Nevertheless, the combination of a reputable partner, a promising prospect, and existing infrastructure positions Lion well for a potentially transformative exploration outcome.