by: William Jhanesta
PDF version of this report can be downloaded here
Italian energy giant Eni SpA is gearing up to become a major contributor to upstream oil and gas investments in Indonesia, particularly through the development of gas fields. Eni recognizes Indonesia's highly strategic position in both the gas pipeline and LNG businesses. Furthermore, the company firmly believes that gas plays a pivotal role for Indonesia in achieving an energy transition before fully transitioning to renewable energy. This brief article will outline some key events related to Eni's business strategy in Indonesia.
Eni’s Presence in Indonesia
Eni's upstream oil and gas business activities in Indonesia have been ongoing since 1968 when the company signed its first agreement with Indonesia related to exploration. In 2001, Eni returned to Indonesia and has since been operating in the Exploration and Production (E&P) sector. This long-standing presence demonstrates Eni's commitment to the Indonesian energy landscape and its ongoing efforts to contribute to the country's oil and gas industry.
Eni's E&P activities are currently concentrated in the Kutei Basin, offshore East Kalimantan. According to records from Petromindo, Eni currently holds participating interests of 10 Production Sharing Contracts (PSCs) in the Kutei Basin, including North Ganal, Ganal, East Ganal, West Ganal, East Sepinggan, Muara Bakau, CBM Sanga-Sanga, Peri Mahakam, Rapak, and Makassar Strait. This extensive portfolio reflects Eni's significant presence and investments in the region, highlighting its commitment to the exploration and development of hydrocarbon resources in Indonesia.
Furthermore, Eni also holds three non-operating blocks that appear unlikely to be developed by the company, given their current focus on the Kutei Basin. Three of these gas blocks are the Krueng Mane block in Aceh Province, which is currently in the final stages of total farm-out negotiations. It is rumored that this block will be acquired by the UK independent oil and gas firm Harbour Energy. Another gas block is the Offshore Timor Sea-I in East Nusa Tenggara Province, which is currently in the process of total relinquishment. The last one is the Ambalat block, which remains a frozen area due to disputed boundaries.
Eni acquires Neptune Energy
At the end of June 2023, Eni announced that it had agreed to acquire assets from Neptune Energy Group Limited, including those in Indonesia, in a deal valued at USD 4.9 billion. Neptune is a prominent independent E&P company with a world-class portfolio of gas-focused assets.
Currently, Neptune holds participating interests as a non-operator in five PSCs in the Kutei Basin. Neptune's assets in Indonesia comprise the Muara Bakau PSC, East Sepinggan PSC, West Ganal PSC, North Ganal PSC, and East Ganal PSC, in which Eni is also involved as the operator in the development of these assets.
According to a source told Petromindo, the acquisition process has already took place and is currently only waiting for closing and an official announcement from the company.
Once the Neptune deals close, the rights holdings of the assets involved will be:
- Muara Bakau PSC: Eni (88.33% + operator), and Saka Energi (11.67%).
- East Sepinggan PSC: Eni (85% + operator), and Pertamina (15%).
- West Ganal PSC: Eni (70% + operator), and Pertamina (30%).
- North Ganal PSC: Eni (88.26% + operator), North Ganal Energy (11.74%).
- East Ganal: Eni (100% + operator)
This acquisition will strengthen Eni's position and operational capabilities in the Kutei Basin, with participating interests ranging from 70 to 100% in these assets. Additionally, it has the potential to bolster equity positions across the LNG supply chain in key markets. The move underscores Eni's commitment to reviving upstream activities with a strong emphasis on the significant exploration and exploitation potential within the region.
Eni Acquires Chevron’s Remaining Assets in Indonesia
During the IPA Convex a few months ago, Eni signed a Sales and Purchase Agreement (SPA) related to the acquisition of three blocks from the US-based company Chevron for the Indonesia Deepwater Development (IDD) projects. This agreement also signifies Chevron's exit from the E&P business in Indonesia, following its previous divestment of all assets in Rokan to Pertamina.
Eni said in a separate statement that it acquired Chevron’s interests in Ganal PSC (62%), Rapak PSC (62%) and Makassar Straits PSC (72%), which are located in the Kutei Basin, offshore East Kalimantan. Previously, Eni already has a 20% interest as non-operator in the Ganal and Rapak blocks.
After the acquisition, the following is a summary of the participating interests of the three PSCs:
- Ganal PSC: Eni (82% + operator) and SIPC (18%)
- Rapak PSC: Eni (82% + operator) and SIPC (18%)
- Makasar Strait PSC: Eni (72% + operator), SIPC (18%), and Pertamina (10%)
There is some production from the Rapak PSC. The production is come from the West Seno field and Bangka field, that are tied-into-the West Seno processing facilities. The combined current gross oil production is likely to be around 1,000 barrels per day, with current gross gas production around 25 MMSCFD.
Furthermore, this acquisition presents an opportunity to accelerate the development of the Gendalo and Gandang gas project, which holds approximately 2 TCF of gas reserves. Eni can leverage its operated Jangkrik facilities for this purpose, along with tapping into the significant potential for further exploration in the area.
The deals represent positive news for the O&G industry in Indonesia. Petromindo estimates that these agreements could accelerate the development of IDD gas potential and potentially support the production of the Bontang LNG plant, which has faced challenges in recent years. However, there are still several tasks ahead for Eni, including finalizing pricing agreements, obtaining government approval for contract PSC extensions, and securing authorization for other new development plans.
Eni Hits Jackpot with Offshore Discovery
Eni, earlier this month, announced a significant gas discovery from the Geng North-1 exploration well drilled in North Ganal PSC, with total structure discovered volume of 5 TCF of gas in place and an estimated condensate content up to 400 million barrels. The discovery continues the Italian major’s hot streak of global exploration success and opening the door to a strengthening of its position in Indonesia.
The drilling of the Geng North-1 exploration well, which was spudded in late July, utilized the West Capella drillship owned by Seadrill Limited. After completing the Geng North-1 drilling, the drillship is currently sailing to the Andaman Sea, Aceh, to drill Mubadala Energy's Layaran-1 well in the South Andaman Block.
This significant discovery further underscores that the Kutei Basin, often considered over-explored, remains highly attractive for the upstream oil and gas industry. Additionally, it validates the strategic business approach of acquiring Chevron's assets in IDD and pursuing the acquisition of participating interests in Neptune Energy within the Kutei Basin.
Benny Lubiantara, Deputy for Exploration, Development and Management of Oil and Gas Working Areas, recently said that the Geng North-1 is the first rank gas discovery for this year globally. Moreover, the discovery is potentially the biggest find in Indonesia for the last decades, after the 2 TCF discovery from Kaliberau Dalam-2X exploration well in 2019. Geng North-1 looks set to be a game-changer for LNG market in the country, with its sizeable reserves and proximity to gas infrastructure.
The chairman of SKK Migas, Dwi Soetjipto, said in a statement recently that the regulator is coordinating with Eni to accelerate the monetization of the Geng North-1 discovery. The Plan of Development (POD) will be discussed soon to ensure the project runs quickly and economically. The regulator also mentioned that first gas from Geng North is expected to be delivered by 2025 at the earliest.
In addition, the giant recovery is expected to attract other International Oil Companies (IOCs) in the country’s upstream sector. There were rumors earlier this year about one of the partners in North Ganal PSC exploring an exit, and the exploration success is sure to sparks mergers and acquisitions (M&A) interest in the block and to pique the interest of potential buyers. Eni also anticipates the presence of untapped multi-TCF potential in close proximity to the giant discovery. After a decade of expanding exploration efforts in Indonesia, the Kutei Basin discovery could serve as encouraging news for the Indonesian E&P sector, potentially leading to a more aggressive approach to increasing exploration activities and investments in the region.
What are the implications for Bontang LNG Plant?
PT Badak NGL, operator of the Bontang LNG plant in East Kalimantan Province, has faced operational challenges in recent year, including the temporary shutdown of some LNG trains due to gas supply shortages. Badak NGL has eight LNG processing trains with total production capacity of 22.5 MTPA. Currently, the company only operates two out of its eight LNG trains, yaitu LNG train E dan LNG train G. In response, Badak NGL is actively seeking opportunities to lease its idle LNG plant to interested parties. This strategic move not only maximizes the efficient use of its facilities, but also offers a potential revenue stream, amidst the shortage of natural gas supply.
In fact, Badak NGL plays a crucial role in advancing Indonesia's national gas lifting objectives. Last year, the plant handled approximately 41% of the nation's LNG production volume, equivalent to 82.98 standard cargoes. This substantial contribution highlights the pivotal role of the Badak LNG plant within Indonesia's energy sector, not only meeting domestic demands but also bolstering the country's position as a prominent player in the global LNG market.
The shortage of gas feedstock is believed to be a result of depleting fields, notably from Pertamina's Mahakam and Eni's Merakes operations. The viable options available to Pertamina and Eni include conducting infill drilling to mitigate the production decline or embarking on new exploration to discover new gas reserves. These strategic choices will be crucial in ensuring a stable and sustainable gas supply for the industry in the face of depleting resources.
Geng North-1 could underpin a new production hub in the northern Kutei Basin, in addition to Eni’s existing Jangkrik hub to the south. The discovery is targeted to eventually supply the Bontang LNG plant, where output remains constrained by feed gas shortages. In addition, Eni's recently announced acquisition of Chevron's stake in IDD, coupled with what it will acquire once the acquisition of Neptune Energy is completed, is expected to accelerate the development of gas fields in the Kutei Basin. Lastly, Eni's aggressive plans in Indonesia will indirectly revive Bontang NGL activities that have been sluggish in recent years, potentially reviving at least five LNG trains from the current two.
end
Petromindo Research
Inquiry: research@petromindo.com
