Oil & Gas Mining Indonesia: Why Chevron Exits the East Kalimantan Block?

I Gusti Nyoman Wiratmaja, Director General of Oil & Gas at Indonesia's Energy and Mineral Resources Ministry, confirmed that Chevron is set to leave the East Kalimantan block in 2018 although the ministry is yet to receive official documentation from Chevron regarding its decision. One month earlier, Chevron had already revealed plans to sell its stake in the South Natuna Sea Block B, one of Indonesia's key oil and gas blocks.

A couple of reasons may lie behind Chevron's decision to exit the East Kalimantan oil & gas block. Firstly, Indonesia has entered a more nationalistic approach toward its natural resources. This is evident in the 2009 Mining Law and the government's eagerness to increase its control over the nation's oil & gas blocks. Throughout Indonesian history it have been the major foreign oil & gas companies that operate Indonesia's oil & gas blocks because these foreign investors have the financial resources as well as the technical skills to tap the reserves effectively and efficiently. However, more and more nationalistic voices are heard from politicians to enhance control over the country's rich natural resources.

Perhaps the reduced role of Total in the Mahakam block was an omen to Chevron. The Mahakam block, also located in East Kalimantan, is Indonesia's largest - yet aging - gas block. France-based Total and Japan-based Inpex operate this block, each commanding a 50 percent stake. However, their production sharing contract with the Indonesian government is set to expire in 2017 and will not be extended by the Indonesian government. Instead state-owned energy firm Pertamina and the regional East Kalimantan government will hold a 70 percent stake in the block after 2017, while the remaining 30 percent will be split between Total and Inpex.

The second reason that could explain Chevron's decision to leave the East Kalimantan block are the current low crude oil prices (and the unlikelihood of seeing a rebound in the short-term). It could be that with crude oil trading below USD $30 per barrel Chevron cannot make a profit at the East Kalimantan block. The third reason could be that the oil & gas reserves at the block have declined too much, causing the company to shift its focus to other blocks.

Crude Oil Price:

The exit from the East Kalimantan block does not mean Chevron will leave Indonesia. American multinational energy giant Chevron Corporation remains committed to the Indonesia Deepwater Development project (also located in East Kalimantan) - which is Indonesia’s first ultra-deepwater natural gas project - and operates the Rokan block in Riau through Chevron Pacific Indonesia, the largest oil producer in Indonesia, accounting for more than one-third of the nation's oil production. Chevron is also engaged in geothermal power development in Indonesia. Taylor stated that "Chevron is proud of the strong partnership with the Indonesian people and government and remains committed to support Indonesia in the development of its energy resources." Regarding the East Kalimantan block Taylor said "Chevron continues to be focused on the safety of operations and will support the transfer of assets to the new operator."

Elan Biantoro, Spokesman for Indonesia's upstream oil & gas regulator (SKKMigas), said it is good that Chevron announced its exit from the East Kalimantan block nearly three years before the existing contract expires as this will give the government time to think about the new operator. Most likely the new contract will be given to a local company. The East Kalimantan block supplies natural gas for the Bontang Liquefied Natural Gas (LNG) plant and Balikpapan oil refinery.

Production Target per Oil & Gas Contractor in 2016:

Oil & Gas Contractor	Working Area	2016 State Budget
Chevron Pacific Indonesia	Rokan	247,950
Mobil Cepu Ltd	Cepu	161,120
Pertamina EP	Indonesia	104,420
Total E&P Indonesia	Mahakam	55,740
PHE ONWJ Ltd	ONWJ	40,520
CNOOC S.E.S Ltd	S.E. Sumatra	30,760
ConocoPhillips Indonesia Inc Ltd	South Natuna Sea Block B	17,050
Petronas Carigali Ketapang	Ketapang	19,140
Chevron Indonesia Company	East Kalimantan	17,590
PetroChina International Jabung Ltd	Jabung	12,600
Virginia Indonesia Company (VICO)	Sanga-Sanga	10,500
BOB - BSP Pertamina Hulu	CPP	11,420
PHE WMO	West Madura	12,270
Sub Total 13 Largest Contractors		741,080
Remaining 70 contractors		88,960
Total Oil Lifting Indonesia		830.040

^{Source: SKK Migas}

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