Shell sells stake in deepwater block off Indonesia

Shell Upstream Overseas Services, a subsidiary of the UK-headquartered energy giant Shell, has inked a sale and purchase agreements (SPAs) with Petronas Masela, a wholly-owned subsidiary of Malaysia’s state-owned energy giant Petronas, and Pertamina’s subsidiary, PT Pertamina Hulu Energi, to divest its entire stake in a deepwater block, which includes an LNG project under development offshore Indonesia.

As a result of these SPAs, Petronas and Pertamina will acquire Shell’s 35 per cent participating interest in the production sharing contract of the Masela Block (Masela PSC), located in the deep waters of west Arafura Sea, Eastern Indonesia. This includes the Abadi gas field, also known as the Abadi LNG project. Petronas will get its hands on a 15 per cent stake while Pertamina will get the remaining 20 per cent, following completion, which is subject to regulatory approval and fulfilment of conditions precedent.

Shell explains that the base consideration for the sale is $325 million in cash with an additional contingent amount of $325 million to be paid when the final investment decision (FID) is taken on the Abadi gas project. With an effective date of 1 January 2023, this sale is targeted to be completed in 3Q 2023, subject to the completion of conditions, which include among others, regulatory approval to be obtained from Indonesia’s Ministry of Energy and Mineral Resources.

Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director, remarked: “The decision to sell our participation in the Masela PSC is in line with our focus on disciplined capital allocation. We wish to thank all stakeholders, especially the government of Indonesia for their support throughout the sales process. Shell remains active in Indonesia and continues to contribute to the country’s energy transition journey.”

Inpex Masela, the operator of the Masela Block, holds the remaining 65 per cent participating interest. According to Petronas, a ceremony to mark the signing of the SPA was held during the 47^th Indonesian Petroleum Association (IPA) Convention & Exhibition, at Indonesia Convention Exhibition (ICE), BSD City, Tangerang, Indonesia on 25 July 2023.

While Petronas was represented by its President and Group CEO and its Executive Vice President and Chief Executive Officer of Upstream, Datuk Adif Zulkifli, Shell was represented by its Director, Finance for Acquisition, Divestment and NBD Asia, Soo Kuo Tong.

Tan Sri Tengku Muhammad Taufik, Petronas President and Group CEO, commented: “This acquisition marks a significant milestone in Petronas’ portfolio expansion in Indonesia. Petronas is excited to participate in the Masela Block which is one of the country’s key strategic projects. Our participation underscores the commitment in supporting Indonesia’s production target to achieve one million barrels of oil per day and 12 billion standard cubic feet per day of gas by 2030.

“The project also provides an opportunity for Petronas to contribute our technical expertise in the development and monetisation of the block, and will further strengthen our global LNG portfolio towards meeting growing demand for lower-carbon energy from Indonesia and across the region.”

Inpex handed out a revised plan of development (POD) for the Abadi LNG project in April 2023, incorporating a carbon capture and storage (CCS) component to the Indonesian government authorities, and plans to revise the production sharing contract (PSC) to reflect the incorporation of CCS, following approval of the POD. The operator emphasises that the project’s annual LNG production volume is expected to reach 9.5 million tons, equivalent to more than 10 per cent of Japan’s annual LNG imports.

Currently, Petronas is a joint venture partner in six PSCs located both onshore and offshore Sumatra, Natuna Sea, East Java, as well as East Indonesia and is also the operator for the Ketapang PSC, North Ketapang PSC, and North Madura II PSC, located offshore East Java.

The company is actively searching for more hydrocarbons, as illustrated by a drilling campaign, which unveiled multiple new oil and gas discoveries in five blocks off the coast of Sarawak, Malaysia.

Petronas is taking deliberate steps to build a resilient and sustainable portfolio to support the transition towards lower carbon energy sources and its efforts towards this goal include developing, testing, and piloting a suite of technologies at its first offshore CCS project set for CO2 injection in 2025.

Additionally, Petronas is pursuing more zero continuous flaring and venting of hydrocarbons to reduce emissions aligned with its aspiration to achieve net-zero carbon emissions by 2050.