Pertamina to Pick Partner for Biggest Gas Reserves by January

By Jane Lee and Angus Whitley

Dec. 2 (Bloomberg) -- PT Pertamina, Indonesia's state oil company, plans to pick at least one partner by next month to develop the nation's biggest natural-gas area to counter dwindling energy supplies, Chief Executive Ari Soemarno said.

The company short-listed eight suitors for 60 percent of the Natuna D-Alpha gas field development in Indonesian waters east of Peninsular Malaysia, Soemarno said. The area was discovered in 1973 although production has been delayed because more than 70 percent of the deposit consists of carbon dioxide, making the gas expensive to extract.

``We hope we can conclude the selection of a partner some time in January,'' Soemarno said in an interview in Kuala Lumpur yesterday. ``It has to be more than one partner. It's too big.''

Indonesia, Southeast Asia's biggest oil and gas producer, is trying to entice explorers to develop gas areas including remote fields to boost production and make up for falling crude-oil output that has forced the nation to leave the Organization of Petroleum Exporting Countries. Soemarno said it will cost at least $10 billion to extract less than 1 percent of Natuna's gas.

Disputes with Exxon Mobil Corp. over Natuna and the Cepu oil field on Java island have delayed increasing Indonesia's energy output. The shortlist for Natuna includes ``all the super majors'' except BP Plc, and one of the partners will own a larger stake than the other, Soemarno said.

The Natuna field is estimated to hold 46 trillion cubic feet of gas, Soemarno said. That's more than a third of Indonesia's reserves of 106 trillion cubic feet at the end of 2007, according to the BP Statistical Review of World Energy report.

Pertamina has short-listed Royal Dutch Shell Plc, Exxon Mobil Corp. and Total SA among the companies, LNG Intelligence reported in November.

Natuna Gas

The list also includes Chevron Corp., Eni SpA, StatoilHydro ASA, China National Petroleum Corp. and Petroliam Nasional Bhd., the trade daily said, citing Upstream Director Karen Agustiawan.

Pertamina is retaining 40 percent of Natuna after the Indonesian government canceled Exxon's holding of 76 percent in the area in 2006 for failing to provide a feasibility study.

Production may include the construction of pipelines to transport the gas to land, or the building of liquefied natural gas plants including floating units, Soemarno said.

``It's in the middle of nowhere,'' Soemarno said. The nearest landmass is 400 kilometers (250 miles) away, he said.

Explorers are also expected to invest in costly technology to remove and store carbon dioxide, an air pollutant, released during the extraction of natural gas.

Plant Delays

The oil company is also delaying the expansion of its two biggest refineries, Cilacap and Balikpapan, to renegotiate development costs after prices of commodities such as steel and cement declined.

Pertamina had planned to build 60,000 barrel-a-day residue fluid catalytic units, or secondary processing units, for about $1.8 billion at each of the plants. Indonesia imports a third of its oil products because of insufficient refining capacity.

``We're ready to postpone by a couple of months to look at more stabilized prices for engineering and production,'' he said.

Consumption next year of oil products including diesel, gasoline and kerosene in Indonesia, the world's fourth-most populous country, will fall below this year's estimated 60 million kiloliters, Soemarno said.

The Indonesian economy is headed for its slowest expansion in seven years in 2009 amid the global credit crisis.

Pertamina's Earnings

A decline in demand will cut Pertamina's 2008 earnings from its earlier estimate, Soemarno said. The company may post a profit of between 26 trillion rupiah ($2.1 billion) and 27 trillion rupiah compared with 24 trillion rupiah in 2007, Soemarno said. Half of its profit last year was paid as dividends to the government.

The country, the world's third-largest exporter of LNG, has initial accords to sell 2 million metric tons a year of the fuel from a Mitsubishi Corp.-led venture to Kansai Electric Power Corp. and Chubu Electric Power Corp., Soemarno said.

Mitsubishi, Pertamina and PT Medco Energi Internasional are building Indonesia's fourth LNG plant, the Senoro project, to meet rising Japanese demand for the cleaner-burning fuel as Indonesia's supplies from its two oldest LNG plants decline. The start of the project may be deferred to 2012 from 2011 as Pertamina reassesses project costs, he said.

To contact the reporter on this story: Jane Lee in Kuala Lumpur at jalee@bloomberg.net; Angus Whitley in Kuala Lumpur at awhitley1@bloomberg.net