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Credit : SKK Migas

Indonesia energy ministry likely to approve Inpex demand to raise Masela block planned production

JAKARTA (RambuEnergy.com) – Indonesia’s Energy and Mineral Resources Ministry (ESDM) has given a green light to approve Inpex Corporation demand to raise planned production of Abadi Field within Masela Block in Arafura Sea to 9.5 metric tons per annum (MTPA) from initial plan of 7.5 mtpa.

Deputy Minister for ESDM Arcandra Tahar said the proposal is likely to be approved as the production rise will improve the ecomomic scale and help boost internal rate of return (IRR) of the project.

He said the rise of output will imply on increasing capital expenditure, which also lead to a rise of cost recovery.

Earlier, Inpex recently asked incentives to the government after the government changed the location of the production facilities from offshore to onshore. One of the demand is to extend the contract to 2038 from 2028. However, Arcandra said the demand is difficult to be met because the government binds by the contract ruling

Under the present ruling, a production sharing contractor (PSCs), are only allowed to seek contract extension a maximum of ten years before the contract expires. That means, Inpex may seek contract extension in 2018.

In addition, Inpex was reported to seek tax holiday and internal rate of return on investment of 15% from the government. Inpex also asked the government to cover costs spent during the exploration period (cost recovery). Those issues, however, are still being discussed by the government.

Spokesperson of Inpex Usman Slamet has said that the demand for incentives is a consequence of the government’s suddened change in its stand to develop production facilities of Masela Block in onsore, rather than offshore.
Inpex and its partner Shell is currently reviewing new planned of development (PoD) for Masela Block development. Earlier, TSpecial Task Force for Upstream Oil and Gas Business (SKK Migas) at the Energy and Mineral Resources (ESDM) expects Inpex to submit the revised onshore-based plant of development (POD) of Masela Block in the Arafura Sea in June 2019.

Vice President External Relation of SKK Migas Taslim Z. Yunus, said Inpex has made its commitment to submit the PoD in that timeframe. Assuming that the PoD is submitted by June 2019, the final investment decision (FID), which provides the detailed engineering and costs of the project, is expected to be finalized in 2025, although the government wants the FID to be finalized much earlier.

Currently, Inpex holds 65 percent working interest in Masela Block and the remaining 35 percent is held by Shell.

The block contains huge gas reserves of around 10.7 trillion cubic feet (tcf). Block Masela covers 4,291.35 square kilometers area, about 800 km to the east of Kupang town, the capital of NTT and over 400 km from Darwin, Australia at water depth of 300-1,000 meters.

On March 23, 2016, President Joko Widodo said he has decided production facilities of Masela LNG project will be built onshore, instead of offshore as proposed by Inpex Corp, the operator of the block. As a result, Inpex must review and resubmit the PoD for Masela Block.

Inpex has submitted the revised Plan of Development (PoD) for Abadi Field in Masela Block worth around US$14 billion in second half last year. The first PoD was approved in 2010. Inpex revised the PoD I after discovering more reserves in the block.

Deputy Minister for ESDM Arcandra has said that the costs to develop Masela block could be lowered than current estimation, but declined to provide further details. (*)

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