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Chevron out from Makassar Strait

The government announced on Wednesday that United States oil giant Chevron had decided to withdraw its proposal to extend its contract for the Makassar Strait block, which expires in 2020

Stefanno Reinard Sulaiman (The Jakarta Post)
Jakarta
Thu, July 12, 2018

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Chevron out from Makassar Strait

T

he government announced on Wednesday that United States oil giant Chevron had decided to withdraw its proposal to extend its contract for the Makassar Strait block, which expires in 2020.

The company said the block was uneconomical, and that it would be removed from its Indonesia Deepwater Development (IDD) project.

The IDD project is one of the biggest natural gas projects in the country, which aims to produce 1.23 million standard cubic feet per day (mmfcd) of gas and 50,750 barrels condensate per day (bcpd) by 2023. The first phase in Bangka Hub started production in 2016.

The project covers three blocks — the Makassar Strait, Rapak and Ganal — with the latter two to expire in 2027 and 2028, respectively.

“We decided to terminate the block [Makassar Strait] and exclude it from the IDD project. The existing operators, Chevron, Pertamina and Sinopec, have said they weren’t interested anymore. So we will tender it soon,” said oil and gas Director General Djoko Siswanto of the Energy and Mineral Resources Ministry.

When contacted by The Jakarta Post, Chevron Indonesia spokesperson Danya Dewanti neither denied nor confirmed about the decision, stressing that the company would remain in the IDD project.

“The government of Indonesia is an important and valued partner and we are continuing the discussions on the second stage of the Indonesia Deepwater Development [IDD],” she said on Wednesday.

Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) chairman Amien Sunaryadi said the auction for the block would take place in about three months.

On June 29, Chevron proposed an extension to its production sharing contract for the Makassar Strait block, along with the Rapak and Ganal blocks. In early July, however, the government ordered the company to renew their proposal and exclude Rapak and Ganal to reduce the IDD project’s cost, as it was still in cost recovery.

In 2014, Chevron told the government the construction cost for the IDD project would reach US$12.8 billion. On June 26, however, the cost was lowered to around $6 billion.

Meanwhile, the government may be missing its year-end target to ink deals for around 23 oil and gas blocks, which are ready-to-produce units, as more than a dozen blocks have yet to be finalized and several units are possibly delayed until next year.

In the first half of 2018, only around seven on-stream block agreements were inked, with the latest deal being three units from the batch of 2020, namely Salawati, Kepala Burung Block A and Malacca Strait.

Previously, the Energy and Mineral Resources Ministry targeted to finalize six on-stream blocks, set to expire in 2020, before June 15 or the day of the Idul Fitri festivities. However, only three contracts have been sealed, and it happened on last Wednesday.

There are currently still three other blocks in the 2020 batch that have yet to be finalized, namely Makassar Strait, South Jambi B and Brantas.

Djoko of the ministry said on Wednesday the South Jambi B and Brantas blocks were still stumbling on internal issues as well as payment of signature bonus and performance bonds, respectively.

“We will confirm with the operator of South Jambi B the internal issue, as usually a state firm has a long process to set out the administration,” he said, referring to Chinese oil and gas firm PetroChina as the new operator for South Jambi B.

The ministry’s upstream oil and gas business development director, Ediar Usman, said on Wednesday his side remained upbeat to seal the deals of those exploration blocks as their potential resources were enticing enough for investors.

As of Wednesday, only seven potential investors have shown interest in five exploration blocks, namely Air Komering, Bukit Barat, Andika Bumi Kita, Southeast Mahakam and Ebuny. The latter four are offshore blocks.

Ediar denied that the gross split scheme, which was introduced in early 2017, was the reason for the snail’s pace in deals over oil and gas blocks, noting that to date the ministry had yet to receive any complaints from investors on that matter.

However, the gross split scheme, which replaces the cost recovery scheme deemed burdensome to the state budget, failed to convince lawmakers. Eni Saragih, the deputy chairwoman of the House of Representatives’ Commission VII, which oversees energy, suggested recently that the ministry had to reevaluate the new scheme.

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