Royal Dutch Shell has reportedly made plans to sell its 35% interest in the Masela Block which contains the large Abadi gas field in the Arafura Sea offshore Indonesia close to the offshore boundary with Australia.
The field, operated by Inpex of Japan with 65% interest, contains an estimated 10.7 tcf of gas and is marked for a multibillion-dollar LNG development with agreements recently signed between the companies and the Indonesian government.
The agreement centered around construction of an LNG plant on Yamdena Island with capacity to produce 9.5 million tonnes/year of LNG. First gas was scheduled for delivery in 2027. The field would also produce 35,000 b/d of condensate.
Shell’s exit, however, leaves a question mark over the development and follows a number of delays over several years due to disagreements over development plans.
Shell favored a floating LNG facility rather than a land-based plant but met resistance from the Indonesian government which wanted provision for more local employment in the project.
The companies finally agreed to the onshore plan, in return for which the government approved a 20-year extension to the production sharing contract for the Masela Block.
Shell has declined to comment on matters involving portfolio activity, but on June 30 the company said it would take a post-tax impairment charge of $15-22 billion during this year’s second quarter—about half of which is related to its integrated gas business, mainly in Queensland CSG-LNG and the Prelude FLNG project offshore Western Australia. Another $4-6 billion is to be in the upstream sector, particularly Brazil and shale projects in North America.
Shell is just one of the majors cutting costs and reshuffling global portfolios to weather the COVID-19 pandemic and the low oil price. Analysts say the Abadi project can be regarded as a big-ticket, long-gestation development that has become less attractive in the current environment.