[NGW Magazine] China spends on Indonesian gas
Rising crude prices have led some oil and gas companies operating in Indonesia to boost investment although there is still some need for better regulation.
The Indonesian unit of PetroChina is planning to invest more heavily in Indonesia, either in upstream and downstream businesses, as the country is one of the main investment destinations for energy sector, according to the local boss of Petrochina, Gong Bencai.
The company is planning to spend $56.9mn this year developing its biggest producing block, Jabung in Sumatra. Last year it spent $43.9mn on it and it is expected to produce 60,000 boe/d this year, up from 55,000 b/d last year. However PetroChina has no set investment allocation for its Indonesian expansion, Bencai said.
The company is considering whether to attempt to buy a stake in some blocks, such as Chevron’s East Kalimantan block once the US major’s contract ends this year. It also wants a 15%-20% stake in the Mahakam block as well the CO2-rich East Natuna gas field, Bencai said.
“We’re interested in co-operating with Pertamina on a joint study in the East Natuna block. PetroChina has developed the (CO2 separation) technology, which is now being tested in the Jabung block. Probably, the outcome can be obtained in the next few years," Bencai said adding that the technology is quite expensive costing around $40mn. The government appointed Pertamina to develop the East Natuna block when US major ExxonMobil pulled out from the consortium.
And Pertamina plans to spend $5.7bn this year for its businesses, up from the $4.5bn spent last year, a senior official at the company said in December. "The capital expenditure is expected to increase in the future and could be double digit starting by 2019," Pertamina's finance director Arief Budiman said. The company plans to spend $3.32bn on its upstream business in 2018, a 21.16% increase from 2017's allocation of $2.74bn. The increase is related to the company's move to buy out the other shareholders in the gas-prone Mahakam block offshore East Kalimantan.
Investment there this year is expected to reach $659mn and on top of that, the company is also allocating $590mn for acquisitions and $183.2mn for geothermal projects. There are some geothermal projects that are expected to run this year, Pertamina's senior vice president strategic planning and operation evaluation Meidawati said.
Pertamina may use some of its money earmarked for acquisitions to finance some of oil and gas blocks that the government has given the company. Pertamina has agreed to develop six out of eight blocks, including North Sumatra Offshore, southeast Sumatera, Tuban, Ogan Komering, Sanga-Sanga and Tengah this year, according to Pertamina's upstream director Syamsu Alam.
However the company is still eyeing oil and gas blocks overseas, especially in Africa and the Middle East, after it had dropped its plan to acquire stakes in Russia's Chayvo and Russkoe fields.
PetroChina's working areas in Indonesia (Credit: PetroChina)
Pertamina plans to sign a contract to develop the Mansouri block in Iran in April this year, Alam said. The block is expected to produce 250,000-300,000 barrels/day. Once Pertamina develops the block it will have a 30% stake, the local oil company will have 20% and another partner will have the remainder. The contract will be based on a service contract, according to Alam.
The company is also in discussion with Algeria's Sonatrach to have a bigger stake in the country's oil and gas blocks, Alam said. Pertamina has some operations overseas, such as in the West Qurna 1 field in Iraq where the company has a 10% stake.
In Algeria, Pertamina holds 65% stakes in MLN field and 16.9% stake in EMK field. Besides that, the company holds 72.65% stakes in French's oil and gas company Maurel & Prom. Maurel & Prom has some oil and gas assets that are scattered across a number of countries as far apart as Gabon, Nigeria, Tanzania, Canada, Myanmar and Italy.
Linked to the higher investment spending, the company plans to boost its oil and gas production in 2018. Pertamina is targeting output of 400,000 b/d in 2018, up by a fifth from 334,000 b/d in 2017. This will come mostly from the Cepu block in East Java. Meanwhile gas production is expected to increase by 47.55% from 2.08bn ft³/d last year to 3.07bn ft³/d in 2018, mostly from the Mahakam block. Combined production will be 930,000 barrels of oil equivalent (boe)/day in 2018, a 34.2% increase from 693,000 boe/d last year, Meidawati said.
Pertamina aims to produce 1.9bn boe/d of crude and natural gas by 2025, from a mix of existing oil and gas block optimisation and from taking over domestic oil and gas blocks and overseas acquisition. It is in line with the company's plan to cut the difference between the country's production and demand, according to Alam.
Just under half the total will be crude: the total 822,000 b/d will come from domestic (353,000 b/d) and overseas (469,000 b/d) production. Meanwhile gas production is expected to increase to 5.71bn ft³/day, of which 4.23bn ft³/day will come from domestic production and 1.48bn ft³/day from overseas, Alam said.
Mahakam
Meanwhile Pertamina through its indirect subsidiary PT Pertamina Hulu Mahakam, so-called as PHM, has taken over the 10% operatorship of the Mahakam block from the previous operator French Total and Japan's Inpex for 50% stake, respectively.
“As part of commitments to maintain the continuation of operation and production, we have completed the drilling of 14 wells and will complete the drilling of the 15th well in the next few days,” Alam said, adding that around 98.23% of Total have also been transferred to PHM, and completed the adjustment of 530 existing contracts with vendors worth $1.27bn.
As per November 2017, the Mahakam block oil and condensate production stood at 52,000 b/d, and gas production at 1.360bn ft³/day. The Mahakam block contains of proven reserves of 4.9 trillion ft³ of gas as at January 1, 2016, and 57mn barrels of oil, and 45mn barrels of condensates. With the Mahakam block operatorship, Pertamina now accounts for more than 30% of the country’s oil and gas production, according to Indonesia's upstream regulator SKK Migas.
Under the 2018 work program and budget approved by SKK Migas, PHM is meant to produce 42,000 b/d and 916mn ft³/day of natural gas. Those figures are expected to be achieved through several activities including the drilling of 69 development wells and 132 work over wells, according to Pertamina.
Pertamina plans to spend $75.3mn on Mahakam over the next three years, starting now. Based on Pertamina's assessment, the Mahakam block's gas output in 2019 may reach 1.207bn ft³/d; rise to a peak of 1,268bn ft³/d in 2020; and then dip to 1,267bn ft³/d in 2021; 1,218bn ft³/d in 2022. In 2023, the output may decline to 1.11bn ft³/d and 35,575 b/d. Meanwhile the condensate production may reach 42,000 b/d in 2019, 43,184 b/d in 2020, 41,850 b/d in 2021 and 39,451 b/d in 2022.
Pertamina plans to seek partner to develop the Mahakam block. However the partnership does not need to be started by January 1, 2018, according to the company's president director Elia Massa Manik.
Previously Total and Inpex had an intention to take part in the block, but failed to reach a deal with Pertamina. The Indonesian government had opened the door for both companies to have up to 39%, which was a bigger stake than what the previous energy minister, Sudirman Said, had offered in his letter to state-owned oil and gas company Pertamina that allows the company to sell the Mahakam's interest maximum 30%. However Pertamina insists that the company is only able to sell the Mahakam stake up to 30%.
Inpex said in a statement in December 25 that with the expiration of the current production sharing contract for the Offshore Mahakam Block at the end of 2017, Inpex would surrender and return the block to the Indonesian government. Inpex will continue pursuing discussions, in close partnership with Total, with Pertamina and the Indonesian government authorities with the aim of participating in the block under the new PSC.
Besides Total and Inpex, United Arab Emirates’ Mubadala Petroleum has expressed its interest to have a stake in Mahakam.
Bontang LNG Plant
Mahakam is the biggest gas block supplying the Bontang LNG plant. The other blocks that contribute include Sanga-Sanga, Attaka, Indonesia Deepwater Development and Jangkrik. The plant has some LNG commitment, such as to Japanese buyers.
The Bontang LNG plant is expected to supply 156 LNG cargoes in 2018, up from 140 cargoes in 2017. The increase will mostly come from Italy's Eni's Jangkrik field, SKK Migas' head Amien Sunaryadi said. Eni produces 600mn ft³/day from Jangkrik which goes the Bontang LNG plant.
This year, the Bontang LNG plant's operatorship has also been taken over by PT Badak NGL from Pertamina Joint Management Group. However SKK Migas has the authority to control the operation and cost of the plant. The decision was made by the government in November 2017.
SKK Migas has also appointed Indonesia's state-owned gas transmission and distribution company Perusahaan Gas Negara, known as PGN, to sell uncommitted LNG cargoes from the Sanga-Sanga block in 2018. The decision was aimed at opening up opportunities for PGN, according to acting oil and gas director general at the energy and mineral resources ministry Ego Syahrial.
The Sanga-Sanga block in East Kalimantan is operated by Vico Indonesia, in partnership with Eni and PT Saka Energi Indonesia, an upstream subsidiary of PGN. Indonesia plans to set up an oil and gas holding company this year, whereby Pertamina will be the holding company. PGN will be under Pertamina and Pertamina's gas subsidiary Pertagas will be merged with PGN.
Besides that, the government also plans to switch one LNG train of Bontang to process lean gas in a bid to be able to process natural gas from the Jangkrik field. All of Bontang's LNG plants process rich gas, the deputy minister for energy and mineral resources Arcandra Tahar said.
"One plant is being converted to be dedicated to process lean gas to adopt gas type that produced by contractors. It will be completed in the next few months," Tahar said. Bontang has only half its eight available trains running, owing to limited gas supply.
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