Singapore-based independent Conrad Asia Energy has had to delay taking the final investment decision on its Mako gas field development offshore Indonesia as gas sales agreement (GSA) negotiations have progressed more slowly than hoped while pipeline access talks have yet to resolved, with the knock-on effect of pushing back start-up from the earlier touted 2025.

“While the company continues to strive to reach a Mako final investment decision at the earliest, on the current trajectory of conclusion of the GSA and gas transportation agreement, FID would be delayed until mid-2024,” Conrad confirmed.

“Production start-up would commensurately slip until mid-2026.”

Also, in light of the forecast escalating costs, the operator now plans to initially bring on stream just two of Mako’s phase one wells so that revenues will be flowing in to help fund the remainder of the phase one project.

Conrad on Wednesday said that the Mako phase one development on the Duyung production sharing contract today has estimated capex of US$325 million, versus the US$251 million estimated by Gaffney, Cline & Associates back in August 2022, and capital costs to initial revenues are currently estimated at US$250 million.

In addition, the company has allocated a provision of approximately US$70 million for owner-supplied equipment to be novated to the mobile offshore production unit (MOPU) provider, which would be refundable, and for possible MOPU down payments, which would be offset in future operating costs.

Phase one comprises six wells with two dry-tree wells and four subsea wells connected via subsea umbilicals, risers and flowlines to a conductor support frame and then to the MOPU with gas processing and compression facilities.

“The increase in capital costs primarily reflects rising costs in the industry,” said Conrad, adding that capital expenditures and the project schedule are being further optimised to reduce external capital requirements prior to first gas.

“For example, the first two dry-tree wells are expected to be brought on stream first to generate initial revenues, whilst the subsea wells are drilled, completed, hooked-up and commissioned.”

The Mako operator added that all project cost estimates would be updated to within 10% accuracy once the procurement process has been completed.

The proposed offshore field development envisages 120 million cubic feet per day of gas being produced for a seven-year plateau period with output decline thereafter.

Mako’s gas will be evacuated from the MOPU via a 60-kilometre pipeline to a subsea manifold on the adjacent Kakap PSC and thereafter will be flow through the West Natuna Transportation System (WNTS) to Singapore — and potentially also to the nearby industrialised Indonesian island of Batam, should a connecting spur-line be built by a domestic gas buyer.

All front-end engineering studies and surveys for the Mako project have now been concluded, while well and facility locations have been optimised based on the geotechnical surveys undertaken last year. Tendering for all major equipment and services is expected to be completed before end-March.

“[However], despite the positive progress, delays have been encountered and this has required a revision of the project timeline and finalisation of the GSA,” admitted Conrad.

Protracted processes

The final GSA with Singapore’s Sembcorp requires that price and gas allocation approval must be endorsed by Indonesia’s Minister of Energy and Natural Resources, Arifin Tasrif, and he has had insisted on improved sales terms that have subsequently been agreed by all parties to the GSA.

“We are working with the buyer, [upstream regulator] SKK Migas and other government departments to target the finalisation of a binding GSA (with customary conditions precedent) as soon as practicable, prior to the end of Q2 2024,” said Conrad.

The key conditions of the Term Sheet with Sembcorp relate to the sale of Mako gas from start of production to the expiry of the Duyung PSC in 2037. This covers a total sales gas volume of approximately 293 billion cubic feet, with a potential increase to around 392 Bcf, representing 71% to 95% of the field’s estimated 2C contingent resources of 413 Bcf.

Meanwhile, Conrad continues to progress the technical and commercial work with the WNTS Joint Venture and, with the support of SKK Migas, to conclude access to – and reserve capacity in – the WNTS to transport Mako’s gas to Singapore.

Also, in line with its Domestic Market Obligation (DMO) as set out in the revised plan of development, Conrad has progressed negotiations of the sales of the domestic portion of Mako gas to state-owned Perusahaan Gas Negara (PGN). Subject to the construction of the pipeline connecting the WNTS with Batam — the Pemping pipeline — the operator intends to sell Mako’s gas to PGN to satisfy its DMO representing approximately 29.5% of Mako sales gas volumes.

Conrad and PGN are finalising a formal agreement to govern these arrangements. However, despite the project being approved for several years, funds for the construction of the Pemping pipeline have yet to be appropriated, and the project remains uncertain, cautioned Conrad.

Against this backdrop, the company is continuing to talk with prospective new partners as it seeks to farm down its 76.5% operated interest in the Duyung PSC.

“The improved GSA price formula and optimised capital expenditures (with the introduction of staged production start-up) underpin both the robust economics of the Duyung PSC and the likely attractiveness of the project to debt providers and potential farm-in partners,” commented James Parsons, chairman of current Mako partner — London-listed Coro Energy — which has a 15% stake.

“We eagerly await the outcome of the farm out process and in the meantime will continue to progress the growth of our renewables portfolio at pace building on our recent progress in both Vietnam and the Philippines.”