Inpex to receive seven-year contract extension

Inpex to receive seven-year contract extension

Minister Luhut Binsar Pandjaitan. (ANTARA/Akbar Nugroho Gumay)

They asked for 10 years. But, we see a realistic figure of 7 years."
Jakarta (ANTARA News) - Coordinating Minister for maritime Affairs Luhut Binsar Panjaitan confirmed that Inpex Corporation, operator of the Masela Oil Block, will receive a 7-year contract extension.

Luhut, during a press conference, said the decision was based upon his meeting with the company in Japan from December 20-21, 2016.

The Japanese oil and gas company previously asked for a ten-year contract extension reimbursement, in compensation for a 2006 - 2016 contract moratorium because of the change in the Masela block development plan from an offshore to onshore scheme.

"They asked for 10 years. But, we see a realistic figure of 7 years," said Luhut.

According to Luhut, the decision to grant a 7-year contract extension is the result of a common negotiation.

Inpex requested to extend the contract so that the company could enjoy a longer production period, which will likely begin in 2024, though the companys contract will expire in 2028.

If it can receive an additional term for its contract, the operator of the largest gas blocks in Indonesia will be able to achieve economic efficiencies, said company officials.

In addition to requesting the extension of the contract, Inpex also proposed a number of incentives, such as the reimbursement of upstream oil and gas operating costs (cost recovery) amounting to 1.2 billion US dollars, and an increase in the production capacity of Liquefied Natural Gas (LNG) regasification.

"We have agreed on all six items they requested. Previously, there were two which were pending (postponed), namely compensation of time and increases in production capacities, as well as the cost of recovery. Now we are waiting for a written statement from them," he said.

Luhut noted that the government agreed that the LNG plant capacity should remain at 7.5 million tons per annum (mtpa), along with an additional 4.7 Million Metric British Thermal Unit (mmbtu). The decision was at the request of Inpex, which wants its refining capacity to be increased to 9.5 mtpa so it achieves economic viability.

The cost recovery, according to Luhut, will be met by the government after an audit of authorized agencies.

"But when it (the audit) will be, we do not know yet. The decision regarding the proposed incentive (by Inpex) will be completed in a week or in two weeks," he said.

Inpex previously proposed several incentives to the government, so that it could achieve a rate of return (IRR) of at least 12 percent, or based on the companys target of 15 percent.

A number of proposed incentives, among others, include the certainty of a contract extension to cover a period of 30 years, or an additional 10 years in compensation for the change in the project scheme from offshore to onshore, along with a tax holiday for 15 years.

The other incentives dealt with the recovery of the cost spent by the company, amounting to 1.2 billion US dollars, as well as an additional share of revenue that is greater than that received by the state
(Uu.A014/INE/KR-BSR/B003)

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