Total chases Papua oil & gas block

Total SA is in serious talks related to the acquisition of ConocoPhillips' participating interest in Warim oil and gas block, Papua. This is part of the company's expansion plans in Indonesia. State-owned oil and gas company Pertamina is also looking into Warim acquisition.

Warim PSC was signed in May 1987. This is an onshore exploration block in an area of Papua that covers 5795 square miles. ConocoPhillips owns 80% participating interest in the block, while Santos Pty Ltd holds the remaining balance. ConocoPhillips is the operator of the block. 

ConocoPhillips also owns 100% Amborip VI PSC, 60% in Kuma PSC, and 100% in Arafura Sea PSC. These blocks were awarded in the period of 2006-2008. Conoco's producing assets are Block B PSC, South Natuna Sea (40%), Corridor Block PSC (54%), and South Jambi "B" PSC (45%).

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North Belut gas field starts production

INPEX CORPORATION announced this week that its wholly owned subsidiary INPEX Natuna, Ltd. together with its co-venturers ConocoPhillips (the operator) and Chevron, has started natural gas production from the newly developed North Belut gas field, in the South Natuna Sea Block B Production Sharing Contract on 16 November 2009.

It is planned to ramp up to sustained gas production rates in excess of 200MMscfd and condensate and LPG of over 20,000 barrels per day in 2010. An active and continuing development drilling program will add this production capacity from start up throughout 2010.

The North Belut field is located offshore in the South Natuna Sea, Indonesia, and is about 1,180 km north of capital city of Jakarta. ConocoPhillips operates the field with a 40% participating interest while Chevron holds a 25% and INPEX holds a 35%. 

The North Belut field is part of the ongoing development of gas and associated liquids within Block B to meet existing long-term gas sales obligations to Malaysia. The project includes drilling and completing numerous wells; engineering, procurement, construction and installation of two wellhead platforms, an intrafield pipeline, one central processing platform capable of processing condensate-rich gas, and export pipelines to the Kerisi pipeline end manifold where it will connect with the existing Block B pipeline infrastructure. The Liquefied Petroleum Gas (LPG) produced will supply the Indonesian domestic market in support of the Government’s kerosene to LPG conversion program.

INPEX has been expanding its exploration and development activities in Indonesia as one of its international business core areas. INPEX is conducting production activity in the Offshore Mahakam Block with the largest gas production in Indonesia. INPEX is also in the process of developing large scale Abadi LNG project in the Masela Block, the Arafura Sea, which INPEX is now preparing for the Front End Engineering and Design (FEED) as the Operator.

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Conoco to start North Belut production this quarter

ConocoPhillips expects to commence production of North Belut field in Block B, Natuna Sea this quarter with plateau at 20,000 barrels oil equivalent per day.

Sig Cornelius, SVP of Finance and CFO ConocoPhillips said in an earnings conference call on Wednesday that North Belut should plateau at about 20,000 BOEPD by 2010.

North Belut field is located in Block B of Natuna Sea, around 60 kilometers east-northeast of the Belanak floating production, storage, and offloading vessel installed in the Belanak field.

McDermott International subsidiary J. Ray McDermott S.A completed the construction of a 14,000-ton integrated deck built at its fabrication facility on Batam Island in June. Wortk on the project began in January 2007 and at the peak of construction, more than 1200 people worked on the North Belut Central processing platform (CPP) topsides achieving 5.2 million man-hours.

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Conoco Indonesia oil production declined 38%

ConocoPhillips reported lower oil production from its Indonesian operation in the second quarter 2009 by 38%, but natural gas production inched up slightly by 0.5%.

Oil production declined from 26,000 bpd in Q1 to 16,000 bpd in Q2, so for the first half, the average production was 21,000 bpd. Compared to the average production in 2008, actually the first half 2009 is substantially higher by 40%. Meanwhile gas production in Q2 was 451 MSCFD, increased slightly from 449 MMSCFD in Q1. 

As for prices, crude oil price increased 30% to US$56 per barrel in Q2, while natural gas gained 24% to US$5.91 per MSCF.

ConocoPhillips has seven production sharing contracts (PSCs) comprising about 12.3 million gross acres. Four PSCs are offshore (South Natuna Sea Block B PSC, Ketapang PSC, Amborip VI PSC, and Kuma PSC). The remaining three PSCs are onshore: Corridor Block PSC and South Jambi "B" PSC in South Sumatra and Warim PSC in Papua.

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Cost recovery claims & US$2.5bn state loss

The Supreme Audit Agency (BPK) found potential loss to the state of US$2.5 billion of cost recovery claimed by five oil and gas contractors, Tempointeraktif.com reported.

BPK has just audited five of the contractors. They are Chevron Pacific Indonesia, ConocoPhilips Grissik, PetroChina Jabung, Medco Rimau and Pertamina-BSP. BPK blamed on Upstream Oil and Gas Regulatory Body (BPMigas) for the potential losses as the agency is seen non decisive enough. BPK also asked government to review the production sharing contracts (PSCs) to have them clearly state what costs could be recovered.

Details are as follows:
Charges on interest recovery:
- Chevron: USD4.95 million
- Conoco: USD170.4 million
- PetroChina: USD23.98 million
Third party contracts:
- GSEA contract between Conoco & Chevron: USD5.46 million
- Electricity supply contract between BOB Pertamina & Chevron: USD20.04 million
- Electricity supply contract between Chevron & MCTN: USD210 million & USD1.23 billion
- Duri oil-gas exchange between Chevron & Conoco: USD4.2 million

OTHERS:
- Collection station modification at Chevron: USD33.979 million
- Investment credit charges for gas operation at Conoco: USD379.5 million (no legal grounds)
- First Tranche Petroleum at Conoco: USD442.19 million during 1997-99 & 2000-2004 (no legal grounds)

Unfortunately none of the companies audited clarified the findings so far. Considering the amount that big, if they're true, so much at stake for these oil giants, especially Chevron & Conoco, both listed in the world's stock exchanges. The scope of audit, I think, has been limited to certain operation of these giants and that would potentially lead to another major findings. It's interesting to see what will be their responds.
BPMigas, as reported by Tempointeraktif.com, simply said it would follow-up the findings and cross-check them with the contracts.
To my surprise, even BPMigas admitted, donations from these oil/gas contractors made to tsunami victims could be charged as cost recovery item as long as it's stated in the contract. Such donation could be considered the company's corporate responsibility & community development program and it's reimbursed.
To me, it isn't fair at all. These companies got so much publication when they gave the donation, perceived as good citizens, and have led people to think how generous they are while actually it's the state/people who pay for it through cost recovery scheme.

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Petronas & Bakrie

Few months ago, Malaysia's Petronas signed the MoU to set up a consortium to bid for the development of gas pipeline from East Kalimantan to East Java. Yesterday, the consortium won the bid, beating listed state-owned gas transmission company PT Perusahaan Gas Negara (PGN) Tbk. How serious is Petronas?

While no details of share ownership in the Bakrie consortium, Petronas will likely play a key role in the pipeline and would only strengthen the Malaysian grip in Indonesian gas transmission business.
In 2002, PETRONAS International Corporation Ltd. (PICL) through Transasia Pipeline Company Pvt. Ltd. (Transasia), acquired 40 per cent stake in PT Transportasi Gas Indonesia (TGI). TGI is a subsidiary of PT Perusahaan Gas Negara (PGN), Indonesia's state-owned gas transmission company.
TGI currently owns and operates the 536-km Grissik-Duri transmission pipeline. The Grissik-Duri pipeline runs from the Corridor Block gas plant to the Duri Oil field. Its current throughput capacity is at 430 mmscfd.
Apart from the Grissik-Duri pipeline, TGI also own and operate the Grissik-Batam-Singapore pipeline. The 468-km pipeline transport gas from Sumatera to Singapore at a capacity of 350 mmscfd.
Transasia is a joint venture company incorporated in the Mauritius comprising a consortium involving PICL (35 per cent), CONOCO Indonesia Holdings Ltd (35 per cent), SPC Indo-Pipeline Co. Ltd. (15 per cent) and Talisman Transgasindo Ltd. (15 per cent). PICL is a wholly-owned international investment arm of PETRONAS.
The interest in TGI marks PETRONAS' entry into the gas transportation business in Indonesia and signifies an important move for PETRONAS in the diversification and expansion of its business portfolio in Indonesia, in line with its long-term investment commitment in that country.
PETRONAS' other activities in Indonesia include upstream business and oil trading. Its exploration and production arm PETRONAS Carigali Sdn Bhd currently has interests in the Jabung block onshore Sumatera and the Tanjung Aru block offshore Kalimantan, and operates the Ketapang and Karapan blocks offshore Java. Recently, PETRONAS started receiving natural gas from Indonesia, transported via pipeline from West Natuna in Indonesian waters to its facilities offshore Terengganu.
Petronas also owns North East Madura IV Ltd. a production-sharing contract for the North East Madura Offshore Block IV.
In 2004, Petronas Carigali Overseas Sdn. acquired Muriah Block PSC held by a unit of oil major BP PLC. Last month Petronas Carigali was awarded the Lampung 2 block in South Sumatra.
Bakrie, on the other side, involved in most of PGN's gas pipeline projects as pipe supplier. The East Kalimantan-East Java gas pipeline would ultimately boost Bakrie's pipe manufacturing business. So, Indonesia's pipeline projects are pretty much in the same hands.

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Medco wins Block A from Exxon

PT Medco Energi Internasional Tbk wins the open bidding to acquire 50 percent working interests in gas field Block A offshore East Aceh at the North Sumatra Basin from ExxonMobil.

PT Surya Energi Raya (SER), controlled by media mogul Surya Paloh---an Acehnese, was reportedly competing Medco in acquiring Exxon stakes, but failed to secure financing.

Medco president Hilmi Panigoro said last year that the comapny would invest US$100 million to develop Block A in Aceh should it win the tenders to buy the concession from ConocoPhillips and ExxonMobil. Conoco owns another half of the production sharing contract and acts as operator.

Block A has estimated reserves of 450 BCF, but the carbondioxide content is high that will make the development cost expensive. Medco estimated that the area would be able to produce some 100 million standard cubic feet per day (mmscfd) at peak production.

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Natuna D-Alpha: Another headache for ExxonMobil

ExxonMobil Oil Indonesia Inc, a subsidiary of US giant ExxonMobil Corporation, is facing another headache over its Natuna D-Alpha working contract as BP Migas (the upstream oil and gas regulatory body) urge the company to immediately submit the feasibility study for the development of Natuna's 173 trillion standard cubic feet (TCF) of natural gas.

ExxonMobil is awaiting the settlement of its years of dispute with Indonesia's PT Pertamina over the giant Cepu oil and gas field in Java Island. Politians mounts pressures on government to appoint Pertamina as the operator of Cepu project.
On September 2005, BP Migas threatened to cancel Exxon's working rights for Natuna D-Alpha amid uncertainty over its future development.
Natuna gas field was estimated to hold total reserves of 140 trillion cubic feet (tcf), though some 72 percent of the reserves contain carbon dioxide. Without the CO2 the gas reserves should be around 45 TCF, which is still huge.
Under such circumstances, the development of Natuna D-Alpha needs investment up to US$40 billion. Such a huge development cost calls for a market capable of generating an adequate return.
That's why, Indonesian government had given the owners of the block the right to retain 40 percent of the block's future gas output, while under standard production sharing contracts, contractors keep 30 percent of gas output, with the remaining 70 percent going to the government.
The D-Alpha block is 74 percent owned by ExxonMobil Oil Indonesia. Pertamina holds the remaining 26 percent of the block. D-Alpha was part of the Natuna gas fields discovered in 1973, located in Natuna Sea, about 225 km off east Natuna Island (600 km northeast of Singapore, and 1,100 km north of Jakarta).
ExxonMobil signed an agreement with the government in 1995 for a 10 year of commercial operation. The fields have never been in production following the failure in the drilling in a number of locations since 1995, but both Exxon and Pertamina still conduct marketing activities and study. Exxon got contract extension for two years that would mature early 2007.
Pertamina has been frustrated by the marketing problem for Natuna D-Alpha and planned to divest 13 percent of its shares to Malaysia's Petronas in exchange of Petronas being the off-taker. In fact, Petronas, Pertamina, and ExxonMobil signed a memorandum of understanding on March 18, 2002 to jointly develop the block.
Three years ago, hopes also emerged as a couple of businessmen brought together by the Asia Pacific Economic Cooperation (APEC) planned to build a pipeline project touted to be the longest undersea gas pipeline in the world linking Natuna D-Alpha, Natuna Island and Shanghai, China. The 4,875-km long pipeline would be routed via Vietnam, Malaysia, and Thailand. However the US$8 billion pipeline project is yet to receive official endorsement from China and Indonesia.
In June 2005, Executive VP Corporate Strategy and Development PTT Public Company Limited (Thailand) Tevin Vongvanich met energy minister Purnomo Yusgiantoro to express the company's interest in developing Natuna D-Alpha.
Purnomo said that time that since there is already a gas pipeline from Natuna (West Natuna fields operated by Conoco), it would make sense if PTT also join the Natuna D-Alpha. But no information since then.
Exxon's partner, Pertamina, decided to postpone the D-Alpha project last year due to huge investment cost. It's a hell of a strain for Exxon.

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Aceh Deal & The Aftermaths

Noted economist Faisal Basri said that the peace deal signed yesterday by Indonesia government and Free Aceh Movement (GAM) has long-term snowball effects for the country as other natural resources-rich provinces could ask similar treatment.

“This is more than just a federal system. This is similar to Scotland. No wonder GAM signed that. But this deal will be employed by Papua to demand even higher than Aceh and we can’t just stop it,” Faisal quoted by Kompas today.

Under the peace deal, Aceh will have authority to raise loans from other countries, impose different interest rates than Indonesian Central Bank, charge local tax, full authority on marine resources, develop and manage all seaports and airports, and most of all to get 70% of hydrocarbon and other natural resources.

Many questions remain unanswered though. On foreign loans, it is not clear whether the deal give Aceh no veto from central government as under the existing law, local administrations are allowed to get foreign loans only with central government's approval.

On different interest rates, it is not clear whether Aceh will have their own central bank and currency accordingly. Details of local tax, profit sharing of hydrocarbon, and infrastructure management will also reshape the way local administration react to Aceh Peace Deal.

A successful peace agreement this time, surely could smooth the way for a $5 billion internationally-backed reconstruction programme in Aceh, where December's tsunami left some 170,000 people dead or missing and destroyed much of the infrastructure.It would also be a plus for investors looking for stability in the world's fourth most populous country.

Peace in Aceh might even reduce piracy in the Malacca Strait—one of the world’s most important shipping lanes, between Indonesia and the southern tip of Malaysia—as well as diminishing an militant insurgency in southern Thailand, since many of the Malacca pirates, and the Thai insurgents’ arms, are said to come from Aceh.

Peace deal will also smooth logging activities in Aceh and help local pulp and paper industry in time of tight wood supply. There are eight companies with license to cut trees in Aceh. PT Krueng Sakti is the largest with concession area of 115,000 hectare, followed by PT Raja Garuda Mas Lestari with 96,500 hectare. Raja Garuda Mas is one of the largest pulp and paper producer in Indonesia. (See Map)

But the deal could lead to other complicated problems and potential uprising in other natural resources-rich areas, especially West Papua which has strong separatist movement like Aceh. In June last year, 20 US senators wrote a letter to Kofi Annan, UN secretary general, urged him to appoint UN Special Representative to Indonesia to monitor and report on the situations in Aceh and Papua.

Talking about hydrocarbon, Aceh was natural gas-rich province, home to the first liquefied natural gas (LNG) plant in Indonesia. The plant, established in 1970s, has six trains with installed capacity of 12 million tones per year. ExxonMobil Oil Indonesia (EMOI) Inc supply gas to the plant from its gas fields in Lhoksukon and North Sumatra Offshore (NSO), both in Aceh territory.

But since 1995, output from those fields decreased significantly due to depleting reserves. As a result, the LNG plant, operated by PT Arun NGL (a joint venture between state-owned oil and gas company Pertamina, Exxon, and Japanese companies) is only running at 40% capacity. Last year, three out of six LNG trains in dormant. Next year, most likely only two trains will be in operation. In less than a decade, gas in the area will be depleted completely.

EMOI also supplies natural gas for two fertilizer plants in nearby. They are PT Asean Aceh Fertilizer (AAF) and PT Pupuk Iskandar Muda (PIM). AAF has one plant while PIM with two plants. Due to natural gas supply problem, AAF is about to be liquidated as the company already stopped its operation more than two years. PIM also has to shutdown one of its plants due to scarcity of gas. Thousands of workers are at stake in these companies, most of them are Acehnese.

PT Humpuss Aromatic, a company owned by Hutomo Mandala Soeharto (youngest son of former president Soeharto), is also processing natural gas from EMOI to produce fuels in Lhokseumawe area. Not to mention PT Kertas Kraft Aceh (KKA), the largest craft paper producer in Indonesia jointly owned by government and Nusamba (controlled by Mohammad Bob Hasan, close ally of Soeharto), that is rely on gas supply from EMOI.

Aceh’s oil and gas future is very much depend on the development of oil and gas reserves in Malacca Strait. A gas block called Block A is currently developed by ExxonMobil and ConocoPhilipps. But Exxon has announced it will sell its shares in the block saying the block is not economically viable anymore for the company. Government has asked Conoco to immediately make decision on the block.

In this oil and gas perspective, Aceh is actually the past for Indonesian economy. The real danger is if West Papua asking for similar or even better deal than Aceh. West Papua is known for its strong Free Papua Movement (OPM). Recently Papuan staged massive protest on weak implementation of special autonomy.

In West Papua, a consortium led by Beyond Petroleum, CNOOC (China), Mitsubishi Corporation (Japan) is constructing two LNG plants with combined capacity of 7 million tones per year and investment of US$3 billion.

West Papua is also home to one of the largest copper mines in the world operated by PT Freeport Indonesia, a subsidiary of US Freeport McMoRan Copper and Gold Inc.

On other hydrocarbon, wood, Papua is Indonesia's future. Aceh has only 550,000 hectares of forest allocated to commercial logging while Papua has 47 licenses with 10 million hectares of forest already awarded to logging companies.

Imagine all of this, a blogger reminded me this morning that the peace deal in Aceh and its aftermath, including the possibility of Papua to strike the same deal, will surely undermine central government's role. But do we still have government anyway?

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