Will Widodo Succeed in Reforming Indonesia's Upstream Sector?

Several large upstream oil and gas projects now awaiting approval from the authorities include Chevron Corp.’s $12 billion Indonesia Deepwater Development (IDD), which covers the Gendalo, Maha, Gandang, Gehem and Bangka gas fields offshore East Kalimantan, Japan’s Inpex Corp.’s Abadi liquefied natural gas (LNG) project in the Masela Block in Arafura Sea and BP plc’s $12 billion Tangguh expansion in West Papua.

The sanction of these projects “could generate over $30 billion of new investment in Indonesia's oil and gas sector,” Wood Mackenzie said in a July 22 release, adding that “a revision of the 2001 Oil and Gas Law and formalization of the upstream regulator’s role is a longer term objective that would enhance the investment environment by removing regulatory uncertainty.”

In this regard, the future of the Total S.A.-operated Mahakam block offshore East Kalimantan continued to hang in the balance as the production sharing contract (PSC) approaches expiry in 2017. Industry players note that the decision on Mahakam PSC would serve as a guide on the new government’s position on foreign upstream investments in Indonesia.

Still, any decision by the government to extend the Mahakam PSC, which accounts for a third of the country’s gas production, is likely to be some time away as “negotiations … with the Indonesian government on contract extension for Mahakam are still ongoing,” an executive at Inpex – an equal partner with Total in the PSC – told Rigzone.

“Total’s Mahakam project is the first important decision for the new Government to make. Pertamina would like to get a stake in an extension of Mahakam PSC. The decision on Mahakam will indicate the likely approach for other expiring PSCs and impact future investment decisions,” Harwood explained.

The decision on Mahakam’s PSC extension is a politically sensitive one for Jokowi to make as national oil and gas firm PT Pertamina had repeatedly informed Indonesia’s Energy and Resources Ministry of its readiness to takeover operations at the block.

“We are 100 percent ready to manage the [Mahakam] block,” Muhammad Husein, Pertamina’s upstream oil and gas director told local media kompas.com in May, adding that the company had already acquire relevant experience through its takeover of the West Madura Offshore and Offshore Northwest Java blocks from foreign contractors .


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