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Eni to Initiate Production From the Merakes Project in 2021

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Per a new production sharing contract, Eni SpA (E - Free Report) intends to begin production of natural gas from the offshore Merakes project in Indonesia in 2021.

Per the deputy minister, initial production at Merakes will reach 155 million cubic feet of natural gas per day (mmcfd), subsequently increasing to a projected peak output of 391 mmcfd.

The new production sharing contract is anticipated to be complete before Dec 12. The company did not reveal any details related to the matter.

The targets are a part of a modified development plan for the East Sepinggan block in the Makassar Strait. Per the revised contracts, Eni and partner Pertamina will take 67% of crude oil and 72% of natural gas production from the project. The remaining amount will be acquired by the Indonesian government.

The modified contract marks the first instance when a conventional cost-recovery production-sharing contract in Indonesia has been changed to the gross split scheme.

Recently, Indonesia adjusted gross split mechanism for new as well as expiring oil and gas production sharing contracts. Through this mechanism, contractors will bear the cost of exploration and production and receive no compensation from the government.

The changes were proposed to draw investors, who were attracted to other prospects in Indonesia, amid lukewarm interest in the country’s energy tenders.

Per the energy minister, the Merakes project is estimated to hold 814 billion cubic feet of natural gas reserves and an economic lifetime of about nine years.

Eni through its local unit — Eni East Sepinggan Limited— holds a participating interest of 85% in the contract and Indonesia’s Pertamina has 15%. With the amendment, the contract duration is unchanged up to Jul 19, 2042.

Zacks Rank & Key Picks

Currently, Eni carries a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Eni SpA (E - Free Report) , Enterprise Products Partners L.P. (EPD - Free Report) and SunCoke Energy, Inc (SXC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rome-based Eni is among the leading integrated energy players in the world. The company delivered an average positive earnings surprise of 16.7% in the last four quarters.

Headquartered in Houston, TX, Enterprise Products Partners is among the leading midstream energy players in North America. It pulled off an average positive earnings surprise of 9.3% in the last four quarters.

SunCoke acquires, owns and operates the coke making and coal mining operations. The company delivered an average positive earnings surprise of 302.6% in the last four quarters.

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