Total Indonesia plans to spend $1.9 bln in 2009

Mon Jul 7, 2008 10:24am BST 

JAKARTA, July 7 (Reuters) - The Indonesian unit of French oil major Total (TOTF.PA: Quote, Profile, Research) plans to spend $1.9 billion in 2009 on development of new wells and upgrading older wells in the Mahakam block on Kalimantan island, a company official said on Monday. 

Indonesia, Asia Pacific's only OPEC member, has stepped up efforts to lure more foreign investment into the energy sector in a bid to increase the country's dwindling output. 

Total said last year it had made two new gas discoveries in the southern part of the offshore Mahakam block, about 45 kilometres (28 miles) from Balikpapan in Indonesia's East Kalimantan province. It expects the field to start producing in 2012. 

Total, one of the bigger investors in Indonesia's oil and gas sector, is seeking an extension of its contract for the Mahakam oil and natural gas block which is due to expire in 2017. 

The Mahakam block supplies about 80 percent of the feed gas for the Bontang liquefaction plant in Indonesia. Japan's Inpex (1605.T: Quote, Profile, Research) also holds a 50 percent share in the block, which is estimated to have to have 11 trillion cubic feet of gas. 

"The capital expenditure for 2008 is $1.9 billion, we will spend about the same in 2009," the head of Total E&P Indonesia, Philippe Armand, told reporters after meeting Vice President Jusuf Kalla. 

The 2008 capital expenditure figure is higher than an earlier estimate of $1.5 billion. 

"Total currently produces 2.6 billion cubic feet of gas per day. Maintaining such production levels in the next two to three years needs high capital," another Total official, who declined to be identified, told Reuters. 

The official said the firm expected the government to extend the Mahakam block contract following an liquefied natural gas (LNG) price agreement between Indonesia and Japanese buyers who buy from the Bontang plant. 

In March, an official at state oil firm Pertamina had said Indonesia and Japanese buyers have agreed on a price for the extension of LNG contracts which are due to expire in 2010 and 2011. 

Indonesia and Japan had agreed the LNG price based on crude oil prices will be around $16 per million British thermal unit if oil prices are at $100 per barrel. 

The new contracts are for 3 million tonnes a year over five years and another 2 million tonnes a year over the next five years. 

The new contract has not been signed yet as Indonesia and Japanese buyers are still talking on other issues. 

Indonesia has failed to meet all of its long-term contractual commitments for a number of years due to depletion of its gas fields and higher domestic demand, tightening the LNG market and driving up prices.

Indonesia's LNG production is set to slide by 4 percent this year, and exports may fall even further as it seeks to divert more gas to the domestic market, industry officials say. 

LNG production is expected to fall to 358 cargoes of 125,000 cubic metres each this year from 372 cargoes in 2007. 

(Reporting by Muklis Ali, Writing by Harry Suhartono, editing by Sugita Katyal)