IDD deal slips again over cost issues

Four years have gone by without any deal inked between the government and United States-based oil and gas giant Chevron on the second phase of construction of the Indonesia Deepwater Development (IDD) because of changes in cost calculations.

    The Finalization of the deal will likely take longer as the government only received the final proposal on Friday, a day later than the deadline, said Deputy Energy and Mineral Resources Minister Acandra Tahar.

“Once we receive it [the proposal], we need time to evaluate it before we decide on whether to agree or decline,” he told the press on Friday, without disclosing the date for the governments approval.

The IDD, which is one of the country’s biggest gas field projects, is in the second phase of operation, which is at the Gendalo and Gehem hubs in the Makassar Strait.

Gendalo and Gehem hubs

The project in Gendalo-Gehem hub is expected to produce up to 1.12 million standard cubic feet per day (mmscfd) of gas and 47,000 barrels condensate per day (bcpd). Meanwhile, the first phase, which is located in Bangka hub, also in the Makassar Strait, has produced 85 mmscfd of gas and 2,400 bcpd of condensate, data from the Upstream Oil and Gas Regulatory Task Force (SKK Migas) shows. By 2023, the Bangka, Gendalo and Gehem hubs are targeted to produce 1,230 mmscfd of gas and 50,750 bcpd.

Arcandra said in 2014, Chevron told the government that the construction cost for the IDD project would reach US$12.8 billion. On Tuesday, it was reported the project cost would decline to around $6 billion, or roughly half of the initial estimate. However, two days later, Arcandra disappointedly told the press that the company had altered the project cost three times within 24 hours. 

“The government will continue to strive for reasonable costs as it has been changed [within 24 hours] Not to mention that the project is using the cost recovery scheme,” he said, referring to a scheme deemed disadvantageous tothe state as it has to bear the project costs, When asked for a confirmation on Thursday night, Chevron Indonesia neither denied nor confirmed that it had gone back and forth in submitting its cost calculation.

Its spokesperson Danya DeWanti said her company was “prohibited to talk publicly on any ongoing discussion with the government? The cost for the second phase of the IDD project is included in a proposal called the plan of development (POD).

Aside from costs, Arcandra said another possible hassle in the agreement that would slow down finalization lied in the production sharing contract scheme. 

“They [Chevron] hope to combine the contract extension for the Makassar Strait, Rapak and Ganal blocks,” he said, adding that the Makassar Strait’s contract would expire in 2020, which is shorter than the deadlines for the Rapak and Ganal blocks.

the Rapak and Ganal blocks East Kalimantan

Arcandra said the Rapak and Ganal blocks would expire in 2027 and 2028 respectively thus remained under the cost recovery scheme. The contract for the Makassar Strait Block, meanwhile, is under discussion regarding an extension.

The block will use the gross split scheme to follow new regulations that were implemented in early 2017.Separately, SKK Migas communications head Wisnu Prabawa Taher told The Jakarta Post that Chevron had submitted its proposal on Rapak, Ganal and Makassar Strait block contracts on Friday.

“In short, Chevron’s proposal revises the IDD’s PoD, which includes the Makassar Strait, Rapak and Ganal blocks,” he said on Friday

 Jakarta Post, Page-13, Saturday, June 30, 2018