Lion Energy reports AUD 5.49 million loss, advances East Seram drilling plans

East Seram Exploration Secured with Farm-Out Funding

Lion Energy Limited (ASX:LIO) has locked in a pivotal farm-out agreement with OPIC East Seram Corporation, a subsidiary of Taiwan’s CPC Corporation, to bankroll 88% of the estimated US$5.6 million drilling cost for the Bula Karang-1 exploration well in the East Seram Production Sharing Contract (PSC). This deal, announced post-year-end in January 2026, trims Lion’s net funding obligation to roughly US$0.7 million and reduces its working interest in the PSC to 45% after drilling.

The Bula Karang prospect, a shallow carbonate reef located approximately 3 km from the producing 20 million barrel Bula Oil Field, carries a mid-case (P50) unrisked prospective resource estimate of around 12 million barrels of oil. The well is planned as a deviated onshore drill targeting an offshore structure, a design intended to lower costs and expedite potential commercialisation by leveraging existing infrastructure on Seram Island.

Preparations for the well are advancing with an experienced drilling team based in Jakarta, and positive engagement with Indonesian regulators, local government, and joint venture partners. Drilling is targeted for mid-2026, positioning the well as Lion’s key near-term value catalyst. This funding milestone follows Lion’s recent strategic shift back to oil exploration in Indonesia, scaling back its green hydrogen ambitions amid market headwinds.

The farm-out funding arrangement and drilling plans were detailed in the company’s recent major funding for East Seram drilling push and earlier funding boost for East Seram drilling announcements.

Divestment of Mature Seram (Non-Bula) PSC Interest

In a portfolio rationalisation move, Lion agreed to sell its 2.5% participating interest in the Seram (Non-Bula) PSC for approximately US$1.2 million, with completion expected in the first half of 2026, subject to customary conditions including government approval. This asset includes the mature Oseil oilfield, which produced over 280,000 barrels in 2025 but is in decline, and the significant Lofin gas field discovery (~1.5 TCF contingent resource).

The divestment removes Lion’s exposure to future capital commitments and operating costs in a declining asset, strengthens its balance sheet, and redirects capital towards higher-impact exploration in East Seram. Production from the Oseil field declined 15.5% year-on-year, with Lion’s share averaging 18 barrels per day in 2025, down from 23 barrels per day in 2024.

This strategic sale aligns with Lion’s disciplined capital management approach and focus on unlocking value from its East Seram PSC, where it holds a 60% interest (reducing to 45% post-farm-out). The company’s latest annual report confirms that this divestment will mitigate potential future negative cash flow risks associated with the mature asset.

Measured Approach to Green Hydrogen Development

Lion Energy’s green hydrogen ambitions, centred on the Port of Brisbane Green Hydrogen Project, remain on a cautious footing. The company has deferred any material capital expenditure pending the achievement of binding offtake agreements, finalisation of EPC contractor selection, and securing appropriate funding, including government grants.

Initial engineering, procurement, and construction (EPC) cost estimates received in 2025 revealed significant cost inflation pressures. Consequently, Lion has moderated discretionary spending and structured a cost optimisation review with partners Samsung C&T and Mitsubishi’s DGA Energy Solutions. The company recognised a non-cash impairment provision of AUD 3.27 million against the hydrogen assets, reflecting the uncertainty around future funding and commercial milestones.

While the hydrogen sector remains strategically relevant for decarbonisation, Lion’s leadership emphasises prudent capital allocation, with any further development contingent on commercial viability and funding availability.

Financial Performance and Outlook

For the year ended 31 December 2025, Lion Energy reported a net loss after tax of AUD 5.49 million, widening from AUD 1.37 million in 2024. The loss reflects continued investment in exploration and evaluation, impairment charges related to the hydrogen project, and ongoing operating costs. The company maintained a disciplined capital management stance, focusing expenditure on the East Seram drilling program while containing discretionary costs elsewhere.

Cash and cash equivalents stood at AUD 1.75 million at year-end, down from AUD 3.16 million in 2024. The company’s net current assets were positive but modest, with management highlighting the need to secure additional funding within the next 12 months to support ongoing activities.

Directors recommended no dividend for 2025, consistent with the company’s focus on reinvestment and capital preservation.

Looking ahead, Lion’s priorities for 2026 are clear: execute the Bula Karang-1 well safely and within budget, plan for aggressive appraisal if successful, maintain balance sheet discipline, and cautiously progress hydrogen initiatives.