INDO Stock & Oil’s Meteoric Rise

A relatively unknown penny stock trading at roughly $4 per share shot onto the energy scene recently with a magnificent 368% increase over four days. Indonesia Energy (NYSE: INDO) has since captured investors’ attention as the stock continues to climb on the market’s bullish energy sentiment. Now trading at more than $60 per share, INDO stock has become a benchmark for many other energy stock plays. 

INDO Stock Background

As an independent energy company focused on oil and gas operations primarily in Indonesia, INDO is working to build an oil and gas assets portfolio of medium-sized producing blocks and exploration blocks with “significant potential resources”. INDO has a strong relationship with the state government and was recognized by the state oil and gas company as the third top performer in 2021 among 11 oil and gas producing companies with Cooperation Agreement Contracts. 

Kruh Block

In this way, INDO has been relying on its producing asset, Kruh Block, for stable cashflow. The  258 square kilometer site produced a gross average of 9,900 barrels of oil per month in 2018. Four wells alone produced an average of 330 barrels of oil per day. However, during 2021 the site had five active wells which produced an average of 175 BOPD with an average production cost of  $24.51 per barrel. 

The company is looking to ramp up production with 18 new wells over the next three years to capitalize on the North Kruh, Kruh, and West Kruh fields which have proved developed and undeveloped gross crude oil reserves of 4.99 million barrels and probable undeveloped gross crude oil reserves of 2.59 million barrels according to a 2019 study. Currently it is in a Joint Operation Partnership with Indonesia’s state-owned oil and natural gas corporation but holds a 100% participating interest in Kruh Block.

Right now, the company is strategizing to increase its production and cash flow by more than 200% this year while cutting its production costs to below $20 a barrel. Part of INDO’s long-term plan is to drill 5 wells in 2022 and thirteen others during the following two years, which will be a considerable investment from the company which estimates the cost per well at $1.5 million. So far, INDO has invested $11.5 million into the site but will see a future revenue stream of $264 million according to its development plan. 

INDO has already commenced drilling for two new wells on the block and has plans to begin the third by mid-year. This fast maneuvering was enabled by a recent private placement in the form of a senior convertible note for $7 million of which $5 million has already been provided. This note carries a 6% original issue discount with an 18-month maturity and a fixed conversion price of $6.00 per common stock share. INDO will make monthly installments until the maturity date after a four month period and payments can be made in the form of cash or ordinary shares.

The private placement which INDO received appears to have come at a good time considering that its annual report recorded a net loss of $2,932,213 and cash burn of $1,635,829 for operating activities during the six month period ending June 30, 2021. INDO had an accumulated deficit of $30,666,995 and working capital of only $6,488,76 at the time. Its net loss was a $630,925 decrease from the same period the year before as a result of increasing revenue and decreasing general and administrative expenses.

Currently, the company is projecting initial production of at least 100 BOPD from each well during the first year which – at a price point of $80 bbl – the company foresees $2.2 million in net revenue as well as $1.35 million in net cash flow. INDO is cognizant of Indonesia’s need for new energy sources as the country anticipates a 6.3% increase per year in demand for natural gas and 5.3% increase in total energy demand per year from 2016 to 2050. Given that INDO’s gas assets are located in West Java where energy demand is most concentrated, the company is confident that it has an eager market for its product as it works to ramp up production. 

Citarum Block

Meanwhile, INDO’s appraisal and development block is Citarum. The 3,925 square kilometer block is located in a region known for its proven petroleum system thanks to a long history of exploration and production dating back to the 1960’s.The block’s past owner- Pan Orient Energy – already invested $40 million into developing the block as the 4 wells drilled so far showed natural gas but gas flow was found in only 2 of the wells. INDO has discovered existing gas zones at depths varying between 1,000 feet and 6,000 feet which is helpful in terms of commercial development. 

On this note, it’s worth mentioning that the block is very near to Indonesia’s capital city which makes the site ideally located for providing energy to Indonesia’s major gas consumption area. For this reason, the block operates under a Production Sharing Contract with the government until July 2048. The company has decided that this de-risked asset is worth further exploration considering the proven presence of hydrocarbons and opportunity for growth if it is able to access the region’s existing pipeline infrastructure network.

Rangkas Block

A third, potential block is being explored through a joint study program with the Indonesian government to determine the Rangkas area’s viability. If the study produces promising results, then a Production Sharing Contract for the Rangkas Area could be available through a direct tender process. The onshore open area is 3,970 square kilometers and adjacent to the Citarum block 

Technical Analysis

INDO stock chart

At the moment, INDO is trading at $63.10 – a 1,216% increase from the end of February. It shows a resistance at $78.10 as well as a weak support at $41.20 and $24.02. After a frenzy of overbuying, the RSI has dropped to 65 while the MACD remains bullish to the upside with the potential of a crossover soon. Accumulation remained low at the beginning of the run as bagholders left their positions after the slight uptick. Since then accumulation has remained relatively steady as people continue to hold their positions.

INDO stock chart

INDO stock has 7.45 million shares outstanding with a low float of only 1.58 million shares which has in part contributed to the stock’s meteoric rise. The stock appears to have an AS of 37,500,000 following its reverse split in 2019. It’s worth mentioning that Dr. Wirawan Jusuf – the company’s CEO and Chairman – owns 5,222,222 or 70.3% of common stock shares as the Director of the private investment firm Maderic Holding Limited which is INDO’s majority shareholder. Another major shareholder – HFO Investment Group – owns approximately 8.74% of the issued and outstanding shares as well.

INDO Stock Forecast

Despite the upsurge playing out across the energy sector, the fact remains that INDO is a penny stock which ordinarily traded at $4 per share. Currently, it has a market cap of $303.65 million but the company is facing considerable ongoing risks which will likely erode the share value back down to its previous average. The private placement it undertook to pay for additional wells at the Kruh block puts an additional financial obligation on the company which it could struggle to meet if any complications arise during the ramp up period. But as is INDO stock has gained considerable attention which could sustain the company in the near term as it relies on the Kruh block for sustainable cashflow.

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