France's Total plans to cut its spending in Indonesia's giant but aging Mahakam gas block by 42% to $1.1 billion next year from $1.9 billion this year due to lower oil and gas prices, a senior official said late Wednesday.
"The lower spending is mainly due to oil and gas prices that are not conducive. It has nothing to do with the expiry of [our] contract ... in end-2017," Arividya Noviyanto, finance, human resources and communication vice president of Total E&P Indonesie told Platts.
The company plans to produce 1.4 Bcf/d of gas and 56,000 b/d of condensate next year. The block is expected to end 2015 with an average production of 1.68 Bcf/d of gas and 69,800 b/d of condensate.
The lower production is caused by natural decline as several of the block's fields have already matured. Total has carried out efforts to arrest the decline, Noviyanto said.
The Mahakam block, which was discovered in 1972, is Indonesia's largest gas block and is located in East Kalimantan.
Total has a 50% operating interest in the block, with Japanese upstream company Inpex holding the other 50%. Their production sharing contract for the block is due to expire in 2017.
More than 80% of the block's output is supplied to the nearby Bontang liquefaction plant and shipped overseas as LNG.
The block is currently estimated to contain 2.7-3 Tcf of proven natural gas reserves before end-2017, which is expected to dwindle to 1.3-1.6 Tcf in 2018 due to natural depletion, Platts has reported.
After the expiry of the current PSC, state-owned Pertamina and the East Kalimantan government will hold 70% of the block, with the remaining 30% split between Total and Inpex.
The new PSC is expected to be signed before the end of this year, Platts has reported.
PSC CONTRACT
The government and Pertamina have reached a deal on the new scheme of production sharing for Mahakam once the state-owned company takes over the block, upstream director at the energy and mines ministry Djoko Siswanto told Platts late Wednesday.
The new PSC offers more flexibility in revenue sharing between the contractors and the government. "If the revenue is higher, the government's take will increase," Siswanto said.
The government's share after tax will range between 80% and 90% for liquids and 65%-75% for gas, according to Siswanto.
Currently the share is fixed at 70% for gas and 85% for liquids.
In the new contract, Pertamina will also be given incentives to boost exploration activities, Siswanto said.
Pertamina, Total and Inpex earlier this week agreed to sign a heads of agreement as part of the preparations for the transfer of the block.
The HOA contains details of the commercial agreement that will be finalized, such as the composition of shares in the partnership and the operation scheme in the new PSC, Siswanto said.
