Chevron working on FEED for Indonesian gas project

Chevron Corp. said it may make the final investment decision as early as 2011 on developing Indonesia's first deepwater gas project off East Kalimantan.

Feb 19th, 2009

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 19 -- Chevron Corp. said it may make the final investment decision as early as 2011 on developing Indonesia's first deepwater gas project off East Kalimantan.

Steve Green, managing director of Chevron's IndoAsia business unit, said the firm expects to spend 12-14 months on the front-end engineering and design (FEED), which is currently under way, and will reach its decision on investment when the FEED is completed.

"In the FEED, we will make a very detailed study of the project, including costs and schedules, that we can construct and execute," Green said, adding: "It's too early to speculate on the project's economic viability."

"I am not going to speculate on the first gas date, we will able to answer that question after the FEED process. But, we are still committed to develop the project," Green said.

Meanwhile, Indonesia's Minister of Energy and Mineral Resources Purnomo Yusgiantoro hinted that the Chevron deepwater project might be exempted from current regulations, which require gas producers to sell at least 25% of their production to the domestic market.

"This project is a very expensive one, meaning that it requires a high price. According to the government regulation, the gas has to first prioritize domestic markets," Purnomo said.

"But, if the domestic gas users, for various reasons, cannot afford to buy this expensive gas, what we are thinking is to combine the use of the gas (the domestic obligation proportion) for domestic market and for export," Purnomo said.

Even though Indonesia has set a priority to supply gas to the domestic market, Purnomo said that the country did not close off other options. "The economic viability of the project is also important," Purnomo said.

Last August Purnomo approved Chevron Corp's plan for developing gas reserves in five deepwater fields off East Kalimantan at a projected total cost of $6.97 billion.

"The government has approved the POD [plan of development], and the company may now start operations," said former director general for oil and gas at the Energy and Mineral Resources Ministry, Evita H. Legowo.

Three of the fields—Gandang, Gendalo, and Maha—lie in a concession of Chevron Ganal Ltd., while the remaining two—Ranggas and Gehem—lie in a concession of Chevron Rapak Ltd.

"This will be the country's first deep-sea drilling project," said Edy Hermantoro, upstream director at the ministry, adding that parts of the field lay in concession areas operated separately by Chevron and Eni Spa.

Therefore, the POD for the area will integrate and involve both companies, he said.

At the time, Edy said the project would increase the supply of gas to the Badak LNG plant in Bontang, East Kalimantan, which will export 75% of its production, mainly to Japan, Taiwan, and South Korea, and sell the remaining 25% domestically.

Chevron holds an 80% operating interest in the fields, while Eni SPA holds the remaining 20%.

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