Chevron says will not extend contract to operate Indonesia oil and gas block

JAKARTA (Reuters) - Chevron will not extend its contract to operate the East Kalimantan oil and gas block in Indonesia, the U.S. energy giant said on Tuesday, as plunging crude prices hit producers around the world.

The logo of Chevron is shown on a monitor above the floor of the New York Stock Exchange in New York, December 30, 2015. REUTERS/Lucas Jackson

The decision is the latest in a string of production curbs and asset cuts by oil and gas companies in Indonesia, reeling from crude prices that plummeted to a 13-year low on Monday.

Last month, Chevron, Indonesia’s top crude producer, also revealed plans to sell its stake in a key oil and gas block in the country, the South Natuna Sea Block B.

“(Chevron) will not propose to extend the East Kalimantan production-sharing contract,” Chevron IndoAsia Business Unit managing director Chuck Taylor said in an emailed statement.

He added that the company would return the assets to the government in October 2018 and that the decision would not affect Chevron’s “pursuit of strategic projects” such as a deepwater natural gas development in Indonesia.

The East Kalimantan block currently supplies up to 70 million standard cubic feet per day (mmscfd) of gas to Indonesia’s Bontang liquefied natural gas plant and 20,000 barrels of crude per day to the Balikpapan refinery, a company spokesman told Reuters.

Elan Biantoro, a spokesman for Indonesia’s upstream oil and gas regulator (SKKMigas), said the government was aware of Chevron’s decision to relinquish the East Kalimantan block. The government is reviewing whether to tender the block again or to hand it to state-owned energy giant, Pertamina [PERTM.UL], Biantoro said.

Chevron has operated the East Kalimantan block for nearly 50 years, and its output had “thinned”, Biantoro said.

“They were also worried about what happened in the Mahakam block,” he said, referring to Chevron’s reason for the decision.

Risks energy investors face in Indonesia have been highlighted by a more than seven-year tussle over the future of the country’s Mahakam block, its top gas-producing field currently operated by Total, as nationalistic elements are pushing for energy assets to be handed to Pertamina.

Last year, majors ExxonMobil and BP both handed back exploration blocks to Indonesia, while Swedish independent Lundin Petroleum said it was exiting the country.

According to SKKMigas, Indonesia’s oil and gas companies are targeting a 2-percent decline in average daily output to 1.944 million barrels of oil equivalent per day (boepd) in 2016, from around 1.981 boepd in 2015.

Oil futures remained under pressure on Tuesday following a slide that has seen prices fall by more than a quarter since the beginning of the year, as the full return of Iran to oil markets adds to an already huge supply overhang. [O/R]

Reporting by Fergus Jensen; Additional reporting by Wilda Asmarini; Editing by Joseph Radford