France's Total may not re-enter Mahakam oil, natural gas block: Indonesia regulator

Jakarta (Platts)--6 Jun 2018 521 am EDT/921 GMT

Total is unlikely to re-enter Indonesia's Mahakam oil and gas block as a project partner as the French oil major has refused to pay state-run Pertamina for its new participating interest, Djoko Siswanto, oil and gas director-general at Indonesia's Energy and Mines Ministry, said Tuesday.

However, Japanese oil explorer Inpex has expressed interest in continuing its participation in the block, Siswanto said.

Total's apparent lack of interest is a major setback for Indonesia's exploration sector, and significantly reduces the chances of raising production levels at Mahakam. Its exit from Mahakam comes after oil majors like Conoco, Chevron and BP have already pulled out of some big-ticket projects in Indonesia.

Total declined comment in response to emailed queries.

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On January 1, joint operators Total and Inpex surrendered Mahakam, Indonesia's most productive offshore gas field, to Pertamina after the license expired in December 2017.

The 100% government takeover of Mahakam after nearly 50 years under Total and Inpex underscored growing state control over Indonesia's energy assets and natural resources.

Pertamina still needed project partners to share exploration risk and said it would restart discussions for a new partnership structure. At the time, Total had expressed interest in further developing Mahakam under new agreements.

Total and Inpex notified the government of their intention to take a combined 39% operating interest in the new production sharing contract for the Mahakam block. But Pertamina insisted that the company is only able to sell up to a 30% stake in Mahakam, S&P Global Platts reported previously.

Siswanto said Pertamina allowed Total to return to the project for a fee that Total refused to pay, while the government was still in discussions with Inpex, which has not officially stated the size of the stake it plans to have in the new partnership.

Separately, Pertamina's upstream director Syamsu Alam told Platts Tuesday that the national oil company has not discussed the Mahakam issue with Total.

Industry experts say they believe the complexity and size of a lucrative asset like offshore Mahakam needs foreign partners that can bring in experience and technology to operate the asset, as well as share high capex costs and financial risks.

Mahakam's production averaged 951.8 Mcf/d as of April, compared with the 2018 target of 1.1 Bcf/d. Its condensate output reached 46,060 b/d, compared with a target of 48,271 b/d, according to data from upstream regulator SKK Migas.

As a mature E&P block, Mahakam's annual production decline rate could reach 50% if Pertamina does not do anything, but the company can arrest the decline rate at 20%-25%. Pertamina plans to spend $75.3 million over a three-year contract starting 2018.

Based on Pertamina's assessment, the Mahakam block's gas output may reach 1.207 Bcf/d in 2019, 1.268 Bcf/d in 2020, 1.267 Bcf/d in 2021, and 1.218 Bcf/d in 2022. In 2023, output may decline to 1.11 Bcf/d.

Mahakam's 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. In 2023, condensate output may decline to 35,575 b/d.

Wood Mackenzie estimates that Mahakam will need $2.5 billion of investment over the next three years to maintain production levels.

(Clarifies nature of withdrawal from Indonesia in third paragraph.)

-- Anita Nugraha,
-- Edited by Kevin Saville,

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