Seoul to examine Kodeco's oil, gas field in Indonesia
Seoul to examine Kodeco's oil, gas field in Indonesia
SEOUL (Dow Jones): The South Korean government may decide to shut down Kodeco Energy Co.'s oil and gas field in Indonesia if a government survey team does not find the project economically viable, a government official said on Tuesday.
State-owned Korea National Oil Corp., or KNOC, will send a survey team as soon as possible to conduct a three-month review of the Madura oil and gas field, Han Sang Kyu, KNOC's executive vice president for exploration and production, said.
He said the team will investigate Kodeco's claim that it has found new oil and gas deposits near the older deposits which the company began developing in 1981.
Han said if these new deposits are confirmed, the government will likely decide to keep the field in production.
Kodeco found itself the focus of government attention when its creditors for the Madura oil field project, including Paribas Bank, began calling on the company's guarantors to assume liabilities, Han said.
Kodeco's guarantors for the Madura project include KNOC, Export-Import Bank of Korea and Hanvit Bank, he added.
Han said Kodeco borrowed about US$26 million to explore and develop the Madura oil and gas field nearly 20 years ago. Kodeco and Indonesian state oil and gas company Pertamina each hold 50 percent stakes in the oil and gas field.
KNOC's board of directors recently decided to pay US$9.8 million to Paribas, which is part of the loan guarantee extended to Kodeco, Han said.
Han said losses, including loans and guarantees provided by Paribas and South Korean banks, currently total 172 billion won (US$153.8 million).
When the South Korean and Indonesian parties began developing the field in 1981, they found a total reserve of 5.2 million barrels of crude oil and 62.8 billion cubic feet of gas in the Madura field, according to a Ministry of Commerce, Industry and Energy official in the resources division.
In 1984, Kodeco began extracting 18,000 barrels of oil a day from the Madura field, but in 1985 production dropped to 3,000 b/d. Last year, production fell to less than 1,000 b/d, KNOC's Han said.
A Kodeco official said production has since increased to about 3,000 b/d. He said oil production at the field has been in a 2,700-2,800 b/d range in March. Han said technical problems were a reason for the sharp fall in production.
Due to the severe drop in oil output, Kodeco began producing gas from the Madura field in 1993, Han said.
He said the company began extracting 30 million cubic feet of gas a day. However around the mid-1990s, gas production fell to 15 million cubic feet a day.
Han said the economic crisis, which started in 1997, severely hurt Kodeco's income from gas sales. The majority of Kodeco's Madura gas is sold to fuel Indonesia's power plants, he said.
When the crisis hit, Kodeco's customers could not afford to pay its gas bills. Han said only since last year has Kodeco been able to collect payment from its Indonesian gas customers.
A second Ministry of Commerce, Industry and Energy official in the resources division said the South Korean government plans to talk to the Indonesian power plants to urge them to keep up payments to Kodeco.
He said the government contacted Kodeco's Indonesian customers in 1998 about missed payments.
Han said he is hopeful that the Madura oil and gas field will not be shut down.
"If it looks like it can be successful, then we must keep it open and continue to support it," Han said. "If it doesn't look economically viable and it looks as if we will lose money, then we must consider shutting it."
The Kodeco official based in Seoul said it has discovered an oil and gas deposit in the Madura field that could produce about 1,500 b/d.