PT Medco Energi Internasional Tbk, an Indonesian oil and gas company, announced on March 3, 2022, that it had completed its acquisition of all ConocoPhilips Indonesia Holding Ltd shares from Phillips International Investments. The market value of ConocoPhilips shares is estimated to be US$3.5 billion.
According to a statement received by Indonesia Business Post, ConocoPhillips Indonesia owns an interest in ConocoPhillips (Grissik) Ltd, which operates the Corridor PSC (production sharing contract), with 54% working interest and 35% stake in Transasia Pipeline Company Pvt Ltd.
The Corridor Block is located in South Sumatra and consists of two oil fields and seven gas fields. Most oil and gas production is sold under long-term gas sales and purchase agreements to long-term customers in Singapore and Indonesia.
Medco Energi has a minority ownership in a gas pipeline that supplies gas to customers in the central part of Sumatra, Batam island and Singapore. The Corridor production sharing contract was signed in 1983 and will expire in 2023. ConocoPhilips, Pertamina Hulu Energi Corridor and Talisman entered into extended gross split production sharing agreement with the Indonesian government in November 2019.
In a statement released by the Ministry of Energy and Mineral Resources, the PSC applies for 20 years and is effective from December 20, 2023. Corridor block development will require an investment of approximately US$250 million from the first five-year firm exploration commitment and US$250 million from the Signature Bonus. At present, the Corridor Block produces 6,864 bopd (barrels of oil per day) and 989.70 mmscd (million standard cubic meters per day) of gas.
A recent agreement between Medco Energi and ConocoPhilips adds to the multinational oil and gas companies leaving Indonesia. Many foreign oil and gas companies have sold Indonesia’s assets before Conoco Philips.
Delayed production in Masela block
In 2020, British multinational oil and gas company Royal Dutch Shell announced it divested its 35% stake in the Abadi gas project in the Masela block in the Arafura Sea. SKK Migas, the Upstream Oil and Gas Regulatory Special Task Force, believes the severity of the COVID-19 pandemic influenced Shell’s decision to sell its stake in the Masela project due to its cash flow.
The Abadi or Masela gas project in the Arafura Sea is in the territory of Maluku province. Japanese company Inpex Corp. owns 65% of shares, while Shell holds the remaining 35%.
Approximately US$15 billion will be required to develop the Abadi gas field. The field contains 12 trillion cubic feet of natural gas reserves.
Inpex Corp., the parent company of Inpex Masela Ltd., announced the delay in the work on the Masela Block Abadi Field project. Initially, the company targeted gas to be produced from the Abadi LNG project in 2027, dunia-energi.com reported. But instead, it said the gas can only be produced in 2030.
Takayuki Ueda, President Director of Inpex, explained in February 2022 that the delay occurred in line with the Zero Emission Strategy plan where the company will include the Carbon Capture Storage (CCS) project in the Abadi Masela project.
Finding Chevron’s substitute in IDD project
In the same year, Chevron Indonesia Company also announced its withdrawal from the Indonesia deepwater development (IDD) gas project in the Makassar Strait, East Kalimantan. The Italian oil and gas company Eni Spa acquired Chevron’s interest. Local media outlets have reported that Chevron is investing US$5 billion in the IDD project. This investment would not compete with another portfolio within Chevron’s global holdings.
The IDD project began production in 2016. It is expected to produce 2,000 barrels of liquid and 33 million cubic feet of gas per day in 2019. The project will involve a total investment of US$12 billion. Several foreign oil and gas companies, including US companies of Hess Corporation and Marathon Oil, and Talisman Energy of Canada have left Indonesia.
Head of SKK Migas Dwi Soetjipto said a number of parties had expressed interest in replacing Chevron. “We’ll keep trying, there are some who are interested, we will immediately forward it to Chevron,” he said on April 22, 2022,as quoted by Kontan.co.id.
Dwi said SKK Migas was still waiting for any developments. In addition, the regulator has also repeatedly sent letters so that there would be certainty for the project. He added that it would take at least four to five years for the project to be onstream.
“Today we have calculated, it will be shifted later [onstream schedule]. We are still looking at it,” he said, adding that ENI might be a potential investor.
Poor Investment Climate
The Oil and Gas Companies Association (Aspermigas) Secretary General Moshe Rizal said there has been pressure from domestic and international world to reduce fossil duel consumption and promote renewable energy sources instead due to the climate change.
In addition, the oil and gas prices have fluctuated in the last couple of years due to the global economic situation and market conditions. The cost of oil and gas declined to US$140 per barrel oil equivalent in 2008. This trend continued in 2014 to 2015. As a result of the COVID-19 pandemic, oil and gas prices fell below zero in 2020 for the first time in history.
Most of Indonesia’s oil and gas fields are old. Therefore, the cost is higher since these are secondary and tertiary onshore oil and gas fields. Additionally, most of Indonesia’s oil and gas discoveries are located in eastern Indonesia, with inadequate infrastructure and offshore fields. Together, these factors result in higher costs.
In addition to the lack of reserves, the 2001 oil and gas law also served as a disincentive for foreign investors. This law failed to increase foreign companies’ confidence in Indonesia. Instead, it eliminated trust by removing many incentives, such as assume and discharge, as stipulated in Act No. 22/2001 of 2001 on Oil and Natural Gas.
“So you can imagine, with high costs, difficulty in exploration, low productivity and limited incentives, it presents a poor business climate,” Rizal told Indonesia Business Post.
There is also a growing nationalism toward Indonesia’s natural resources among authorities, politicians and the public on a political level. The government recently took over oil and gas blocks whose contracts had expired and awarded the contract directly to state-owned oil-and-gas giant PT Pertamina.
Most of them were booming oil and gas fields that foreign companies have exploited for many years, such as the Mahakam and Rokan blocks.
According to Rizal, it is unethical for the government to directly award the contract for Pertamina.
“The foreign investors left Indonesia because they had more profitable portfolios in other countries,” he argued.
In Rizal’s opinion, the government must first eliminate nationalism to restore the confidence of foreign oil and gas producers. Nationalizing the oil and gas industry will benefit the government politically as it is heroic for the government to take back control of the natural resources from foreign governments.
However, it is a terrible decision for Indonesia as a business entity. The government should ensure that there is no further nationalization of businesses.
Second, all incentives given to foreign companies before the 2001 oil and gas law should be resubmitted in the revised law. The government and lawmakers should revise the current oil and gas law to attract investors.
