INPEX CORPORATION (INPEX) has announced that through its subsidiary INPEX Masela, Ltd, it has submitted to Indonesian government authorities (the authorities) a revised Plan of Development (POD) for the Abadi LNG Project (the Project). The revised POD is based on an onshore LNG development scheme with an annual LNG production capacity of 9.5 million tons. The Project involves developing the Abadi gas field in the Masela Block located in the Arafura Sea in Indonesia.
The submission of the revised POD follows a series of dialogues between the authorities and INPEX, as the operator of the project on behalf of the Joint Venture (INPEX Masela and Shell Upstream Overseas) to secure the Project’s competitiveness through a Heads of Agreement (HOA) signed with authorities on June 16, 2019(*1). In April 2016, the authorities instructed INPEX to resubmit a POD for the Project, based on an onshore LNG development scheme.
The terms contained in the HOA with the authorities including cost estimation, Production Sharing Contract (PSC) period and financial conditions are also written in the revised POD.
(*1) Announced on June 17, 2019 https://www.inpex.co.jp/english/news/pdf/2019/e20190617.pdf
“The submission of the revised POD for an onshore LNG development scheme based on the Heads of Agreement signed on June 16, 2019 is a major milestone for the Project. INPEX anticipates that the revised POD will be approved at an early stage, after which the company will work in partnership with Shell toward reaching FID and ultimately commencing production, with the cooperation of the Government of Indonesia,” said Shunichiro Sugaya, President of INPEX Masela, Ltd.
The revised POD incorporates the results of Pre-Front End Engineering Design (Pre-FEED) work conducted between March and October 2018.
In addition to submitting the revised POD, INPEX, in partnership with Shell have filed an application to amend the PSC for the Masela Block. This amendment accommodates the additional seven years’ time allocation to the PSC term due to the time spent studying the previously proposed development scheme.
In conjunction with the revised POD, INPEX, with support from Shell have also submitted an application to extend the duration of the PSC to enable competitive project economics, taking into account the Project’s long-term production outlook.
The term of the PSC will be until 2055, subject to the authorities’ approval of the amendment and the extension. The 20-year extension of the PSC terms are essential to the realization of the Project. The application of the additional seven years and the extension of 20 years is based on the terms agreed with the authorities in the HOA.
Li P’ing Yu, Shell’s Vice President for Abadi, said of the submission, “Shell is pleased with the progress made by the Joint Venture, led by INPEX as operator, towards the development of the Abadi project. The submission of the revised POD is a significant milestone for the project, which advances the Joint Venture closer to delivering a major National Strategic Project for Indonesia.”
Utilizing the knowledge and experience gained through operating the Ichthys LNG Project in Australia, INPEX will continue to work closely with its partner Shell to make the necessary preparations to commence FEED work at an early stage, following the authorities’ approval of the revised POD, and aims for the production startup in latter half of 2020s.
The Project is the first large-scale integrated LNG development project operated by INPEX in Indonesia and follows on from the INPEX-operated Ichthys LNG Project in Australia. The Abadi gas field features excellent reservoir productivity and has one of the world’s largest reserves, raising expectations of efficient development and stable LNG production operations over the long-term.
The Project will provide significant contributions to the Republic of Indonesia and bring multiplier effects to Indonesia particularly in the eastern region.
The impact of this matter on INPEX’s consolidated financial results for the year ending December, 2019 is minimal.