ExxonMobil says will drop discussions over Indonesia's East Natuna gas field

JAKARTA (Reuters) - The Indonesian unit of ExxonMobil on Tuesday said it “no longer wishes to continue further discussions or activity” involving the country’s East Natuna natural gas block, believed to hold one of the world’s largest reserves of untapped gas.

Logos of ExxonMobil are seen in its booth at Gastech, the world's biggest expo for the gas industry, in Chiba, Japan April 4, 2017. REUTERS/Toru Hanai

The firm’s Vice President of Public and Government Affairs Erwin Maryoto told Reuters in an email the decision was taken after completing a “technology and market review”.

Exxon’s exit likely means further delays in developing a field that was first discovered in the 1970s. Difficulties with the field have included contract disputes and the remoteness of the block, which is on the southern edge of the South China Sea.

The East Natuna field holds approximately 46 trillion cubic feet of recoverable gas resources, according to Exxon, although it comes with a carbon dioxide content of more than 70 percent - which also increases the cost of extracting useable fuel.

State energy firm Pertamina had expected to sign a production sharing contract with ExxonMobil and Thailand’s PTTEP for the project last year.

Syamsu Alam, Pertamina’s upstream director, said the company has not been informed directly of Exxon’s decision, but that it was committed to developing the East Natuna field, once a partner is found.

“Surely Pertamina wouldn’t be able to develop the block alone, we need a partner,” Alam told Reuters in a text message.

Indonesia’s government has received a letter from the U.S. oil major on its decision to pull out of the gas block, Wiratmaja Puja, director general of oil and gas at the energy ministry, told reporters.

In the letter, Exxon said developing the block would be “uneconomical for the company under current terms”, but it offered to help with technology and technical assistance for the project if needed, according to Puja.

Puja estimated that developing the project under current terms would make its gas too expensive, at about $10-15 per million British thermal units (mmBtu). That compares with spot prices for liquefied natural gas (LNG) in Asia that are currently less than $6 per mmBtu.

The government plans to invite Exxon to discuss the project again, saying it might offer “a special incentive” to make it economically viable, Puja said.

Malaysia’s Petronas and France’s Total were previously involved with the East Natuna project, but they have both pulled out.

In the past, Pertamina’s official has said that developing the East Natuna project could cost up to $40 billion.

Reporting by Wilda Asmarini; Writing by Gayatri Suroyo; Editing by Tom Hogue