ConocoPhillips (COP) has sold its 54 per cent stake in the Corridor PSC in Indonesia to Medco Energi for US$1.4 billion.
Medco will also acquire COP’s interests in the associated Grissik and Transasia pipelines.
In parallel, COP has exercised pre-emption rights to purchase an additional 10 per cent stake in its Australian LNG project APLNG from partner Origin Energy for up to US$1.645 billion.
This would increase its stake in APLNG to 47.5 per cent at closure, subject to approvals.
Wood Mackenzie research director Angus Rodger said this was a transformative deal for Medco Energi.
Rodger continued: “The biggest deal in the Indonesian independent’s acquisition spree in recent years, Corridor will become the largest asset in the Medco portfolio.
“The deal doubles Medco’s production to approximately 160 thousand barrels of oil equivalent per day, providing cashflow to continue its acquisition-led strategy.
“However, perhaps the bigger story here is the accompanying deal to pre-empt EIG’s acquisition of a 10 per cent stake in APLNG.
“COP is effectively swapping a mature, emissions-intensive asset, for an incremental stake in an early-life, lower carbon intensity asset with stable cashflows linked to LNG market upside.
“A strong focus on portfolio high-grading, coupled with financial strength, has enabled COP to execute this switch, not long after spending US$9.5 billion on Shell’s Permian portfolio.
“The deal also confirms COP’s commitment to the Asia Pacific market, specifically Australia.”
Wood Mackenzie analysis regarding the Corridor PSC transaction notes shifting regulatory dynamics present risk, but also potential upside – an Indonesian-owned operator should have more bargaining power when entering negotiations on future investment approvals, gas sales agreements and possible fiscal enhancements.
Upsides, and downsides, beyond the usual operating efficiencies, include:
• Fiscal terms: The Corridor extension was granted under Gross Split PSC terms. However, since 2020, the Indonesian government has signalled Cost Recovery would remain an option. If the extension was switched back to cost recovery, Wood Mackenzie estimates additional contractor value could be achieved, while supporting new investment.
• Gas pricing: After the extension was awarded, Indonesia enacted regulation that capped domestic gas prices for new contracts at US$6/mmbtu delivered, until at least 2024. It is unclear what level of price cap will exist beyond 2024.
• Decarbonisation: The neighbouring Sakakemang development, operated by Corridor partner Repsol, is expected to utilise depleted fields on the Corridor PSC for carbon capture and storage (CCS). If successful, this could offer a potential revenue stream for Corridor, or provide an option for sequestering CO2 from the Corridor PSC itself. However, regulations for CCS in Indonesia are progressing slowly.
• Resource upside: Exploration on Corridor has been limited in recent years, but it is likely Medco will have lower prospect size thresholds when identifying new drilling targets.