Mahakam Block Performance Feared To Drop In Period Of Transition

Kuta, Bali (Antara Bali) - The National Energy Council (DEN) warns against a sharp fall in gas production from the Mahakam block during the period of transition, before the block operation is taken over by state oil company PT Pertamina by the end of 2017.

Total EP Indonesie will end its contract in the block in 2017 and the operation of the block is to be handed over to Pertamina, Andang Bachtiar, a member of the council, said here, Tuesday.

Based on the contract the government may not interfere in the operation of the block even toward the end of the contract.

"The problem is that there is no clause in the contract allowing intervention by the government to ensure that the contractor would make additional investment needed to prevent a drastic fall in production," Andang said.

The contractors may no longer be interested in making new investment until the end of the contract in 2017, he said.

"The block turns out 1.2 million cubic feet of natural gas per day. The production would shrink when there is no more investment. The problem is that it could take up to five to eight years to recover the normal productivity . It would make us suffer badly," he said.

He said in the future the contracts have to be revised as many oil and gas contracts would expires soon , and there is no guarantee that production would continue normally after the end of the contracts.

President Director of PT Pertamina Dwi Soetjipto said the company would need funds for investment in the event of a decline in the productivity of the Mahakam block.

"Pertamina would study if it could handle the operation alone or it has to team up with partners. Pertamina will welcome partnership," he noted.

He said, however, that Pertamina has been ready for the take over of the operation of the Mahakam block .

He said study was already wrapped up in February or earlier than previously set target in April 2015.

"That shows how serious us in the prospect of taking over the operation of the Mahakm block after 2017," he said

He said the government has also warned of against a decline in productivity .

Currently the Mahakam block contract is held jointly by Total EP Indonesie of France and Inpex Corporation of Japan with Total as the operator.

Total, which has operated the block for almost 50 years, has indicated strong interest in renewing its contract, but the government has decided to hand its over to Pertamina.

Pertamina will take over the gas block from Total E&P after the French oil giant ends its contract for the block in East Kalimantan in 2017.

Head of the performance control unit of the energy and mineral resource ministry Widhyawan Prawiraatmadja said the government will not interfere in determining the Mahakam block share splits.

"We hand it over 100 percent to Pertamina . It is up to Pertamina whether it it is to be the single shareholder or it will team up with partner," Widhyawan said earlier.

The government will neither take part in determining the involvement of the East Kalimantan provincial administration as a shareholder of the block.

Earlier, East Kalimantan Governor Awang Faroek Ishak said the central government had a scenario in the share splits with Pertamina to have 51 percent, Total 30 percent and the regional administration 19 percent.

Widhyawan, however, repeated saying,"It is all up to Pertamina."

He said the government would soon send a letter to Pertamina about its decision and another to Total about the termination of its contract.

Pertamina already presented to the government describing its ability to operate the gas block.

Widhyawan said the government will assure that the process of transferring control of the block from Total to Pertamina would be smooth.

Earlier Total E&P Indonesie proposed a five-year transition in the transfer of the operation of the block after the termination of its contract in 2017.

"Whatever the decision of the government and its long term effect, we ask the government to allow a five year transition," President and General Manager of Total E&P Hardy Pramono said.

Hardy said among the goals of the proposed transition is to make the process of transfer smooth from Total to Pertamina and to secure the investment program needed to maintain productivity in the coming years.

"In addition to guarantee implementation of commitments in gas shipments to domestic and international buyers," he said.

Widhyawan said the option of involving Total could be considered under a swap scheme with Pertamina given a stake in Total`s projects abroad.

He said a contract between Pertamina and Total could be signed in 2015 although it would be effective only after the termination of Total`s contract in 2017 .

"That will give a long transitional period for Pertamina before it will take over the operation of the block from Total," he said.

During the transitional period, a number of issues related to the contract could be settled such as sales of gas and oil, supporting services and the workers, he said. (WDY)