PGN buys $4.3b gas deal from ConocoPhilips

Tony Hotland, Jakarta

State gas distribution company PT Perusahaan Gas Negara (PGN) signed on Monday a US$4.3 billion contract to purchase natural gas from leading U.S. refiner ConocoPhillips, upon expectations of a boost in revenue.

"With the increase in our gas supply, we expect to reap an additional revenue of $200 million in 2007 and $500 million in 2011," PGN director WMP Simandjuntak said after the signing ceremony.

The firms achieved a revenue of Rp 3.6 trillion ($391.5 million) last year and a net profit of about Rp 520 billion.

Also present at the ceremony were Minister of Energy and Mineral Resources Purnomo Yusgiantoro, State Minister for State Enterprises Laksamana Sukardi, chairman of Oil and Gas Implementing Body (BP Migas) Rachmat Soedibjo and ConocoPhillips president for Asia Pacific R.M. Lance.

Conoco will sell a total of 2.3 trillion cubic feet of gas for a period of 17 years from its Corridor block in Grissik, South Sumatra. It will begin selling 170 million cubic feet per day (MMFCFD) in the first quarter of 2007, increasing to 400 MMCFD by 2012 and maintaining this rate until the contract expires.

"The contract is to meet accelerating demand in the western parts of Java, where many industries are located," Simandjuntak said, adding that the PGN would sell the gas at $3.60 per million British thermal units.

Lance said the contract indicated Conoco's commitment to Indonesia and recovering investors' confidence in the country.

Aside from the Conoco deal, the PGN has also signed a contract with state oil and gas PT Pertamina to buy 250 MMCFD of gas over 15 years from Pertamina's South Sumatra gas field, which will start operations in 2006.

"This means that starting 2007, the PGN will be able to distribute 650 MMCFD of gas, 2.5 times greater than the company's distribution value last year," said Simandjuntak.

The PGN will build a new 660 kilometer pipeline to channel natural gas from South Sumatra to West Java. Part of the pipeline will be underwater, connecting Java and Sumatra via the Sunda Strait.

The publicly listed company has said it needed up to $1 billion to build the pipeline, of which $150 million has been raised through initial public offerings and $275 million through bond issues, while the Japan Bank for International Cooperation has provided a $450 million loan.

Laksamana said the new contract should help the government's efforts to promote the wider use of natural gas to ease dependence on oil-based energy.

Last year, the country consumed 54.7 million kiloliters of oil-based fuels, amid a continued decline in crude oil production due to aging oil wells.

Indonesia has natural gas reserves of 140 trillion cubic feet (TCF), most of which remains untapped. The country is the largest liquefied natural gas (LNG) producer in the world, exporting 55 percent of its annual production of 3 TCF.