Chevron Renewal of Indonesia's Rokan Block Not Assured: Energy Minister

JUNE 28, 2018

Washington. United States energy giant Chevron must compete if it wants to continue operating Indonesia's Rokan block, the country's biggest source of crude oil, after its contract expires in 2021, Energy and Mineral Resources Minister Ignasius Jonan said on Wednesday (27/06).

Chevron asked the Indonesian government earlier this year to extend its operating contract for Rokan beyond 2021 and since then has been in discussions with government officials on the issue.

"I just talked to Chevron's new chief executive and told him that it is up to him. If they propose to continue to operate the Rokan block the economics have to be justifiable," Jonan told Reuters on the sidelines of the World Gas Conference in Washington.

"And they may face some competition as well, from foreign operators and from Pertamina," he said, referring to Indonesia's state-owned energy company.

Michael Wirth, who has been with Chevron since 1982, became chief executive in February.

A Chevron spokesman did not immediately respond to a request for comment.

Indonesia has earned a reputation for favoring Pertamina to take over expiring oil and gas contracts in the past, stoking concern among foreign energy investors about the security of their projects.

Jonan, who said he is eager to earn the trust of investors to boost development of Indonesia's natural resources, said the days of playing favorites were "in the past."

"The only maxim we stick to is the economics. There is no favoritism about the origin of the company, there is no political play. The answer is no and no. It is the economics. That applies to everyone, foreign companies, local companies, and government companies," he said.

Jonan said Indonesia was also in discussions with Chevron about another project it is operating, Indonesia Deepwater Development, a natural gas production effort in East Kalimantan, after Chevron cut $6 billion in spending plans there.

"We both agreed to go and find the best way to work on this block for both sides," he said, adding tat the negotiations now "will go down to the technical level."

Jonan said he had not yet used his authority to adjust fiscal terms for oil and gas blocks to encourage investment, but was ready to do so in any cases where investment returns were projected to be below 15 percent.

Jonan said he is "seriously considering offering fiscal adjustments to a number of smaller blocks" in Indonesia, but he did not name the blocks or the companies involved.

Gold, Copper, Coal

Jonan also said he met this week with Freeport McMoRan chief executive Richard Adkerson to discuss the company's Grasberg gold and copper mine in Papua. The Phoenix-based company has been in tricky negotiations with Indonesia to secure long-term operating rights at the mine after the government introduced rules last year forcing it to divest its controlling interest.

Jonan said the two agreed that Freeport needs freedom to operate the mine in the way it sees fit in the near term, but that the government insists on having a voice.

"We agreed that, operations-wise, Freeport has to be in charge at the moment. Honestly, we don't have the expertise," he said. "But if you talk about control, it is a very delicate word in terms of management. I would like to say we both control."

Jonan added that Indonesia, which produces and exports large amounts of coal, currently viewed the fuel as critical to keeping electricity costs down for its population.

"We have a serious concern about global warming and are trying to reduce the use of coal as the primary energy for our power plants," he said. "But we go with the affordability for the public."

He said Indonesia would find it difficult to reach its target of generating 23 percent of its power from renewable sources by 2025 – as pledged under the 2015 Paris agreement on climate change – but remained hopeful it could reach somewhere above 20 percent by that time.