Indonesia seeks Chevron, ConocoPhillips proposals in investment push

Yoga Rusmana and Eko Listiyorini 8/3/2017

JAKARTA (Bloomberg) -- Indonesia wants Chevron Corp. and ConocoPhillips to submit proposals to renew their licenses to operate oil and gas fields as the former OPEC member seeks to reverse a decline in energy investments.

Energy and Mineral Resources Minister Ignasius Jonan asked Chevron executives last week to inform the ministry about the explorer’s plans for Indonesian operations beyond 2021, he said in an interview. The government expects Chevron to make a proposal within this year, he said. Jonan also told Conoco executives to prepare a proposal if they wished to seek an extension for a block set to expire in 2020.

An early decision on the fate of licenses for Chevron and Conoco may help the government reassure prospective foreign investors as it wrangles with Freeport-McMoRan Inc. over renewal of its permit to operate the Grasberg copper and gold mine. President Joko Widodo is seeking to attract investment of as much as $200 billion into Southeast Asia’s largest economy over the next decade to increase crude oil production.

“Chevron’s production sharing agreement will expire by 2021, and we told Chevron to propose to us what they are going to do,” Jonan said, referring to the explorer’s output deal with the government. “If they apply for the extension of their concession, we will evaluate.”

Chevron requires competitive fiscal terms, investment-friendly policies and legal certainty to ensure the Rokan block will continue to provide value to all stakeholders, Cameron Van Ast, a Perth-based spokesman, said by email.

Largest producer

The second-biggest U.S. oil explorer, which has been operating in Indonesia for more than 90 years, is the country’s largest producer of crude oil, delivering approximately 40% of the national production from its operations in Riau in Sumatra and East Kalimantan and is also the largest producer of geothermal energy, according to its website.

Jonan told Conoco executives to prepare a proposal if they wished to seek an extension for its South Jambi block. The company has shut down production after the existing fields have been depleted, and Conoco and venture partners are evaluating future options, according to the company website.

Joang Laksanto, a spokesman for Conoco in Indonesia said in a text message that the company would respond to the government, “accordingly.”

Indonesia announced in 2015 that state energy company PT Pertamina will take over majority ownership and become the operator of Mahakam, the country’s biggest gas-producing block, from stakeholders Total SA and Inpex Corp as the production contract expires in 2017. Pertamina will now decide whether to rope in a new partner for the project, Jonan said.

Exxon refinery

The government has invited Exxon Mobil Corp. to set up a new refinery or explore the possibility of relocating a unit from Singapore to tap into the growing demand for fuel products in the world’s fourth-most populous country, Jonan said. Exxon declined to comment.

The government will help Exxon increase crude oil production from its Cepu field to 220,000 bpd from about 210,000 bpd now by securing the environmental clearance, Jonan said.

Indonesia may need to import half of its annual fuel needs even after increasing its refining capacity by 500,000 bpd in the next seven years, according to BMI Research. The nation’s processing capacity may grow 2% by 2025, while consumption surges 31% in the same period, according to BMI.

Indonesia currently produces about 800,000 barrels of crude oil a day and imports about 500,000 bbl of crude and about 800,000 bbl of refined products, according to the Energy Ministry.

The switch to a so-called gross split scheme for oil and gas explorers from a cost-recovery plan was meant to speed up the approval process and efficiency, Jonan said. The ministry will make some changes to the “attachment” of the scheme to incorporate feedback from the industry, he said.

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