Esso clinches US$35b Natuna gas project
Esso clinches US$35b Natuna gas project
JAKARTA (JP): Esso Natuna Inc. of the United States clinched a deal yesterday with the state oil firm Pertamina for the construction of a US$35 billion gas liquefaction project in Natuna, Riau.
"All parties are satisfied with results of the final negotiations on the Natuna gas liquefaction project," Pertamina's president, Faisal Abda'oe, told reporters after the signing ceremony at the company's headquarters here yesterday.
The ceremony, which was attended by Minister of Mines and Energy I.B. Sudjana, was also marked by the signing of four technical assistance contracts between Pertamina and domestic companies.
Under yesterday's agreement, Pertamina and Esso will each hold a 50 percent stake in the project and allocate 60 percent of their planned gas production, after the recovery of investments, for the government and the remaining 40 percent for themselves, Abda'oe said.
The output share for the contractor is bigger than the standard 30:70 ratio because Natuna gas contains a large portion of poisonous carbon dioxide.
Pertamina's director of production and exploration, G.A.S. Nayoan, said Esso agreed to increase the government's output share if the carbon dioxide content is less than the original estimate of 71 percent.
Concerning Pertamina's 50 percent stake in the project, Abda'oe said that his company plans to sell up to 39 percent of the stake in the Natuna project to private domestic sector companies in the future.
"The main reason for the planned sale of its stake is to involve prospective investors to support the mega project," he said.
Abda'oe said that the Natuna project will be subject to tax treatment similar to that stipulated in the newly-amended tax laws.
"Under the agreement, Esso Natuna Inc. will pay a 35 percent tax on its income from the liquefaction project," he said. The tax facility includes a five percent branch distribution tax.
The new tax ruling, which came into effect on Jan. 1, has reduced the maximum income tax rate from 35 percent to 30 percent for the income base of over Rp 50 million ($22,737). The ruling also offers special tax incentives to investors operating in frontier areas or under certain business priorities.
Abda'oe did not disclose whether Esso Natuna Inc. is entitled to the tax incentives.
Investment
Abda'oe said Esso Natuna is committed to investing $100 million a year in the initial phase of the gas liquefaction operations at Natuna -- about 1,110 kilometers north of here, or 600 kilometers northeast of Singapore.
Esso has reportedly invested around $16 billion for its initial development of the gas field in the Natuna bloc since its first operations in 1980.
Both Abda'oe and Nayoan declined to discuss the local contents of the project, but a Pertamina report earlier said that the state firm has proposed a requirement of 30 percent local content in the project.
Abda'oe said that in the first phase of the Pertamina-Esso cooperation, Esso will need at least three years to engineer and design auxiliary facilities at the Natuna field, which is designed to have a total of 18 platforms.
The platforms will include six for drilling, six for treatment (each dealing with 36 wells), two for living quarters and four for injection.
Abda'oe expected that the project, billed to be the largest concentration of gas reserves in the world, would start its initial commercial production within 10 years from now.
The project will be capable of producing up to 35 million tons of LNG per year for 20 years.
Yesterday, Pertamina also awarded four technical assistance contracts to PT Mayumi Megakerta Sasana for operating Pertamina's old oil fields with an enhanced recovery method in Sungai Gelam, Jambi, to PT Siddhakarya Pilona Sabaku at Sabaku and Salawati, both in Irian Jaya, to PT Siddhakarya Pilona Salawati in Salawati of Irian Jaya and to PT Mayumi Megakerta Sasana in the Ramok and Senabing fields in South Sumatra. (fhp)