TANGERANG, Indonesia (July 25): Indonesia's Pertamina and Malaysia's Petroliam Nasional Bhd (Petronas) signed an agreement with Shell on Tuesday (July 25) to buy its 35% stake in the Masela natural gas block for up to US$650 million , moving the project forward after years of delay.

Pertamina Hulu Energi will take 20% and Petronas Masela Sdn Bhd will take a 15% stake in the Indonesian gas block, the companies said at a signing ceremony at the Indonesia Petroleum Association conference.

The base consideration for the sale is US$325 million, with a contingent amount of US$325 million to be paid when the final investment decision is taken on the Abadi liquefied natural gas (LNG) project, Shell said in a statement.

Abadi LNG, led by Japan's Inpex Corp, will use gas from the Masela block, located 150km offshore of Saumlaki in the Maluku province, to produce 9.5 million metric tons per year of LNG at its peak that will be exported from the proposed terminal.

The transaction should be completed in the third quarter, subject to several conditions, including regulatory approval from Indonesia's Ministry of Energy and Mineral Resources, Shell added.

"The decision to sell our participation in the Masela PSC (production sharing contract) is in line with our focus on disciplined capital allocation," said Zoe Yujnovich, Shell's integrated gas and upstream director.

Pertamina chief executive officer Nicke Widyawati said in a statement that purchase of the stake is intended to ensure adequate oil and gas supply for national energy needs.

She touted the experience of upstream unit Pertamina Hulu Energi in the exploration, development and production of gas fields, including its operation of the Badak LNG plant.

Indonesia's oil and gas production has declined in recent years as blocks are depleting, and as some major new projects, such as Masela and Indonesia Deepwater Development (IDD), are facing delays as majors such as Shell and Chevron Corp exit projects to reflect changes to their global strategy.

"Indonesia still has huge potential for natural gas sources, so we are in the race to explore and exploit to make it as a big bridge to support our energy transition," Indonesian Energy Minister Arifin Tasrif said in his opening remarks at the conference.

Arifin told Reuters last month that Petronas and Pertamina had planned to take over Shell's Masela stake.

Negotiations between Italy's Eni to take over Chevron's stake in the IDD project are targeted for completion in July, the minister said last month.

  - Reuters