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Indonesia's Pertamina boosts 2018 upstream investment by 21% on year, focuses on Mahakam

Indonesia's state-owned Pertamina plans to spend $3.324 billion on itsupstream business in 2018, a 21.16% jump year on year, senior companyofficials said Friday.

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One of the reasons for the boost in capital investment is Pertamina'smove to take over the Mahakam block in East Kalimantan, Indonesia, fromFrance's Total and Japan's Inpex, they explained.

"Mahakam's investment requires about $659 million, acquisition $590million and geothermal projects $183.2 million," Pertamina's senior vicepresident, strategic planning and operation evaluation, Meidawati told S&PGlobal Platts.

In addition to Mahakam, capital expenditure for next year will also befor domestic projects such as the Jambaran gas field located within the Cepublock. Pertamina acquired a 41.4% stake in ExxonMobil Cepu Limited's Jambaranthis year. This field along with Pertamina EP's Tiung Biru field make up theJTB project. Pertamina plans to spend $1.547 billion in 2018 to develop theJTB project, upstream director Syamsu Alam told Platts.

The fields are estimated to hold combined reserves of 2.5 Tcf. Pertaminaholds a 91% stake in the project. It has a production capacity of 315 MMcf/dand is expected to be on stream in 2020, Alam has said.

PLANS FOR MAHAKAM

Total and Inpex's Mahakam contract will expire this year, and Pertaminawill take over the block. The company plans to produce 1.1 Bcf/d of gas fromthe Mahakam block in 2018, 14.19% lower year on year. Condensate production isexpected to reach 48,000 b/d next year from 40,770 b/d this year.

Pertamina will carry out work on 57 development wells and 32 workoverwells in the Mahakam block in 2018, Platts previously reported.

Pertamina's total production of crude and gas for 2018 is set at 930,000barrels of oil equivalent per day on average, a 34.2% increase year on year,according to Meidawati. The company plans to produce 400,000 b/d of crude andcondensate from all domestic and overseas operations in 2018, 19.7% higheryear on year. For gas, it plans to produce 3.069 Bcf/d next year, 47.55%higher than 2017's target.

"The increasing production is mainly from Mahakam block," Meidawati said.

The company is also looking at acquiring more oil and gas blocks. It hasset a target to produce 2.2 million boe/d in 2025, where 600,000 boe/d comesfrom its overseas assets, Platts previously reported.

OVERSEAS BUSINESS

Pertamina will focus on Iran for its acquisition plan next year, besidescontinuously evaluating potential blocks in some other countries, Alam said.

The company expects to be able to finally realize its planned acquisitionof an operating interest in Iran's Mansouri oil field in April next year. Theblock is expected to produce about 250,000-300,000 b/d. It will be based on aservice contract model, Alam said.

Pertamina will have 30% interest in the field, with another 20% to beheld by an Iranian partner, and the remainder to be allocated for otherpotential partners, according to Alam.

Pertamina had officially submitted a proposal on two Iranian developmentfields -- namely Ab-Teymour and Mansouri -- to the National Iranian OilCompany earlier this year. Both fields have been expected to contain reservesof more than 5 million barrels.

Meanwhile, Pertamina and Algeria's state-owned oil and gas companySonatrach signed on December 21 a new memorandum of understanding. Bothcompanies agreed to open new investment opportunities for Pertamina in theupstream sector in Algeria, including development of existing and new assetswhose potential production could go up to 20,000-30,000 b/d, with totalreserves of more than 100 million barrels, Pertamina said in a statement lateDecember 21.

This MOU is a revision of the one signed in 2016. After the inking of theMOU, Pertamina and Sonatrach will finalize the agreement and settle oncommercial terms to propose a development plan to Algeria's authority, thestatement said.

Pertamina had bought ConocoPhillips' stake in Algeria in 2013 for $1.75billion. This acquisition allows Pertamina to assume 65% participatinginterest in Block 405a, which contains three main oil fields: Menzel LejmatNorth known as MLN, Ourhoud, and EMK. Pertamina has 65% participating interestand operatorship in the MLN field, and 3.7% and 16.9% interest in the Ourhoudand EMK fields, respectively, Platts has reported.

Meanwhile, Pertamina has decided to cancel a planned acquisition of twoblocks in Russia, even though there is always an opportunity to keepcooperating with Russia's Rosneft in upstream in other assets, Alam said.

In May 2016, Pertamina and Rosneft had reached agreement to build a300,000 b/d refinery in East Java, and this was followed by the upstream deal.Pertamina had been considering to take a stake of about 10%-15% in two oil gasblocks in Russia, respectively. The company had targeted to get 35,000 b/d ofproduction and 200 million barrels of reserves from those blocks.

But Russia's high taxes has made the acquisition economically unviablefor Pertamina, Alam said.

--Anita Nugraha, newsdesk@spglobal.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@spglobal.com