The Indonesian state owned oil and gas company PT Pertamina will take control of the operation and development of major gas field Mahakam Block from January 1, 2018.
The decision was taken after the government on Friday (June 19) decided to award 70 per cent of the participating interest in the block that is located in East Kalimantan province.
Minister for Energy and Mineral Resources Sudirman Said, told the press that a portion of interest will be given to the East Kalimantan local government. The remaining 30 per cent interest will be given to Total E&P Indonesie of France and Inpex Corporation of Japan.
The government granted majority interest to Pertamina because it wants the company to become the operator with full authority for the future development of the block. The exact portion of participating interest to the local government, however, is yet to be determined.
Mahakam Block is currently operated by Total E&P. It holds 50 per cent working interest, while the other 50 per cent interest is owned by Inpex Corporation of Japan, as a non-operator partner.
The existing operator signed the production sharing contract (PSC) to operate and develop the block on October 6, 1966. The first contract expired on March 30, 1997. On January 11, 1997, the Indonesian government extended Total’s contract for 20 years to December 31, 2017.
Both Total E&P and Inpex had submitted their interest to extend their contract to operate the block in 2007, however, the previous government delayed making decision on the contract extension.
Mahakam Block began flowing gas from 1974 and helped to position the country as one of the largest LNG exporting nation.
East Kalimantan governor Awang Faroek said in March this year, that of the total participating interest that is given to Pertamina, East Kalimantan province would get 11.4 per cent and Kutai Kartanegara Regency would get 7.6 per cent.
However, the final decision depends on the result of negotiations between the central government, Pertamina and local governments.
Total E&P Indonesie has earlier requested a transition period of five years after its contract expired in 2017, before the block’s operatorship was handed over to Pertamina. However, the government seems to be objecting to the proposal and wants the transition to be done prior to the expiration of the contract.
Observers have said that the talks on participating interest composition and transition period have caused the negotiations to take longer time than expected.
Total E&P Indonesie has said that it expects the Mahakam gas block’s proven reserves to fall to 2.7-3 trillion cubic feet (tcf) by 2017 and plunge further to 1.3-1.6 TCF in 2018 due to natural depletion from 4-4.5 TCF of gas at the end of 2012.
Total said more investment was needed to discover new proven reserves in order to prevent the natural decline. Total spent at an average $2.5 billion per annum to maintain gas production from the block. The block’s gas output is supplied to the nearby Bontang liquefaction plant and shipped overseas as LNG.
Mahakam block is located in offshore and onshore East Kalimantan. Some parts are located in swamp areas, making it one of the most complex gas blocks in Indonesia. Due to this, a few observers seem to be doubtful about Pertamina’s capability in handling the block, given its lack of experience in managing large gas block like Mahakam.
However, the company managed to convince the government that it has the required capability to operate and develop the block. It has assured the government that the employees at the block will be retained, to ensure a continuity of the block’s operation.