Shell plans to sell its stake in the Masela gas block (Indonesia)

Shell has initiated talks to sell its 35% stake in the Masela gas block in the Timor Sea near Indonesia’s border with northern Australia, operated by Inpex (65%). The Masela Block Production Sharing Contract (PSC) - due to expire in 2028 - was extended for another 27 years, i.e. until 2055, in 2017.

In 2010, Indonesia approved an initial floating LNG (FLNG) plan with an annual capacity of 2.5 Mt/year, which was raised to 7.5 Mt/year in September 2015. However, in April 2016, the Indonesian government rejected the initial US$15bn FLNG plan, saying an onshore plant would be US$6bn cheaper and more beneficial for the local economy. The authorities instructed Inpex to re-propose a plan of development based on onshore LNG instead, delaying the anticipated start of production from the field until the late 2020s. In July 2019, the government approved the revised development plant for the project; as agreed in June 2019, it would consist of a 9.5 Mt/year onshore gas liquefaction plant, gas pipelines and offshore facilities. Inpex is now expected to make a final investment decision (FID) on the project, which could start operation in 2027.

In July 2020, Shell announced US$15-22bn impairment charges and write-offs in 2020, in a context of enduring impact of the COVID-19 pandemic on the global economy and energy demand and of likely transition to a lower-carbon energy system. The aggregate post-tax impairment charges will relate to integrated gas and LNG assets (US$8-9bn, including the Queensland Curtis and Prelude LNG plants in Australia), upstream resources in Brazil and in North America shale basins (US$4-6bn) and refineries (US$3-7bn). Shell expects Brent crude oil price to average US$35/bbl in 2020 (ramp up to US$60/bbl in 2023 and afterward), Henry Hub gas price US$1.75/MBtu in 2020 (rising to US$2.75/MBtu in 2023 and US$3/MBtu afterwards) and average long-term refining margins to be around 30% lower than previous mid-cycle downstream assumptions.