Indonesia Government to Extend Masela Contract by 27 years

Photo by MEMR

JAKARTA (TheInsiderStories) – The Indonesian government has agreed to extend Inpex Corp’s operational permits for developing Masela natural gas project in the country’s east by up to 27 years, once it expires in 2028.

The agreement was made after Indonesia Minister of Energy and Mineral Resources Ignasius Jonan met with Toshiaki Kitamura, CEO of Japan-based  Inpex Corp, the block’s operator, in Tokyo last Tuesday (17/10).

The Ministry extended the contract for 20 years and then added seven more to compensate for an earlier government mandate for the project to be built on land rather than as a floating facility as had been proposed earlier.

“We will give Inpex a 20-year extension because it is almost out of contract term. Coupled with a 7-year extension as compensation for the decision to change the scheme of floating refinery development into a land refinery,” said Jonan in a statement.

Inpex will build an LNG plant with a capacity of 9.5 million ton per annum (MTPA) and pipe gas network of 150 million standard cubic feet per daym (MMSCFD). Masela Block is believed to have gas reserves of 10.73 trillion cubic feet (TCF).

Currently, Inpex holds a 65 per cent interest in Masela Block, with the remaining 35 per cent owned by Shell. Pertamina has expressed its interest to acquire a stake in Masela Block.

The existing contract to explore and develop the block will expire in 2028. Inpex had earlier decided to develop offshore LNG processing facilities (FLNG), but the Joko Widodo government decided to build onshore processing facilities, forcing Inpex to restart the plan of development (PoD) as well as FEED of the project.

Pre-FEED will be an important step to formulate revision of a field development plan (PoD). As previously known, the PoD revision was made to increase LNG production capacity while still using the floating refinery scheme.

In addition to developing LNG plant, the Indonesian government is planning to develop a petrochemical complex nearby the LNG plant.

The Masela Block agreement, signed in 1998, is administered by Inpex as operator, with 65 per cent share ownership and Shell Upstream Overseas Services with 35 per cent. The Indonesian government hopes that Inpex can immediately start the gas field project.

Inpex entered into a production sharing contract (PSC) with the Indonesian Government in October 1966, at that time acquiring a 100 percent interest in the Offshore Mahakam Block. The Attaka Unit was established in April 1970 through the unitization of part of the adjacent blocks owned by INPEX and Unocal (now Chevron), with each company taking a 50 percent interest.

Production of crude oil and natural gas has continued since 1972. INPEX farmed out 50 percent of its interest in the Offshore Mahakam Block to CFP (now TOTAL) in July 1970. This venture subsequently made a series of discoveries in the Bekapai (oil), Handil (oil), Tambora (oil and gas), Tunu (gas), Peciko (gas), Sisi and Nubi (gas) fields, as well as the South Mahakam Gas Fields (gas), each of which has continued to produce crude oil and natural gas.

The crude oil and condensate produced from these fields are shipped mainly to oil refineries and power companies in Japan by tanker from the Santan and Senipah terminals. Most of the natural gas is supplied to the Bontang LNG Plant, and then shipped as LNG to customers in Japan and elsewhere.

The Offshore Mahakam Block has begun to see output decline after more than 40 years of production. In 2012, impediments at production wells led to a large drop in output, in addition to natural attrition.

Thereafter, successful steps were taken to control the decline in production by advancing efforts to counter sand problems and accelerate the pace at which the Company undertakes development well drilling. Despite these endeavors, production is still expected to decrease gradually in the future.

INPEX has been in discussions with Pertamina and TOTAL concerning participation in the block after 2018.

Writing by Elisa Valenta, Email: