American oil and gas giant Chevron plans to withdraw from the national strategic Indonesia Deepwater Development (IDD) project in Makassar Strait and the government has wasted no time seeking a replacement.
The government has approached Italian oil and gas company Eni to take over the project, said Energy and Mineral Resources Ministry acting oil and gas director general Ego Syahrial on Wednesday.
He suggested that Chevron’s exit was “one packet” with the company’s impending exit from the Rokan Block in Sumatra. But analysts have pointed out that exits are common during periods of low global oil prices, such as during the COVID-19 pandemic.
“What’s clear is the government’s aim is to ensure this project runs by 2027,” said Ego.
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Eni Muara Bakau, the Rome-based company’s arm in Indonesia, did not respond to queries from the Post about the IDD.
Chevron recently excluded the IDD project from its global portfolio, saying the multibillion dollar project was not competitive enough to secure portfolio capital despite still being an attractive hydrocarbon region.
“Essentially, Chevron has more attractive opportunities elsewhere, and the [IDD] project will need a new operator before it can progress,” upstream oil and gas analyst Andrew Harwood of energy consultancy Wood Mackenzie told The Jakarta Post on Thursday.
Chevron’s global upstream portfolio is instead concentrated in more lucrative assets in the United States, Australia, the Gulf of Mexico and Kazakhstan, among other regions, he said via email.
“Eni is one potential buyer and could find synergies with its existing Jangkrik development in the Muara Bakau PSC [Production Sharing Contract],” said Harwood.
However, he pointed out that Indonesia needed to guarantee license extensions for the new operator as existing ones were slated to expire by 2028 and 2029. He said the government would also likely need to offer fiscal incentives to improve project economics.
Chevron’s plan to exit the IDD project is a second major blow to Indonesia’s oil and gas industry this year after it was revealed last month that Shell planned to exit the Masela Block in Maluku, which is another national strategic asset.
IDD and Masela are two of four national strategic assets expected to turn Indonesia into one of the Asia Pacific’s major gas exporting economies by 2030, a vision overseen by the Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas).
The IDD project involves developing the Bangka Field and the Gendalo-Gehem Field, both of which are located in the Kutai Basin. Chevron successfully began production in the former field in late 2016 but the latter field has proven to be economically challenging.
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“We believe the project will have value for another operator,” said PT Chevron Pacific Indonesia spokeswoman Sonitha Poernomo to the Post on Thursday.
She also said that Chevron “has not made the final decision to pull out” of IDD.
Development of the Gendalo-Gehem Field, a project valued at US$6.98 billion, was expected to produce 27,000 barrels of oil per day (bopd) and 844 million standard cubic feet per day (mmscfd) of gas by 2025, according to SKK Migas data.
“[Chevron] has not replied to our letter. We are still in talks. We are waiting,” said SKK Migas head Dwi Soetjipto on Tuesday as reported by Kontan.com.