Future of Mahakam gas block remains unclear

JAKARTA. The Energy and Mineral Resources Ministry has yet to provide clarity on whether it will extend the production sharing contract (PSC) for the Mahakam oil and gas block in East Kalimantan, despite calls from the country’s upstream oil and regulator and experts to do so this year.

Deputy Energy and Mineral Resources Minister Rudi Rubiandini said in Jakarta on Wednesday that the government could not put a timetable on a decision regarding the oil and gas block, which contributes around 30 percent of the country’s gas output.

“We cannot give an exact date just yet because we are still discussing with related parties,” Rudi said in a phone interview with The Jakarta Post.

 In 2007, then Energy and Mineral Resources minister Purnomo Yusgiantoro delayed the decision on the Mahakam block as the government was still demanding that Total SA provide a more favorable
production split.

As the contract to operate the block — jointly held by the local unit of France-based oil giant Total SA and Japan’s Inpex Corp. — will expire in 2017, the upstream oil and regulator BPMigas has called on the ministry to decide the fate of the contract five years prior to the expiry date.

The decision on whether the government would extend the current concession this year became the most anticipated among 29 concessions slated to expire between 2013 and 2021.

Separately, the Energy and Mineral Resources director for oil and gas affairs, Evita Herawati Legowo, said the government was still mulling over whether Total SA would continue to operate the block or whether the state-owned PT Pertamina would take over the former’s role.

“We are still discussing it. Please be patient,” she told the Post in a text message on Wednesday.

Last week, Evita told reporters in Jakarta that the new agreement for the Mahakam block operation would likely be signed after she retired from the ministry in December this year.

On Wednesday, however, Evita said the government would make an effort to reach a decision before December.

BPMigas operations deputy Gde Pradnyana said the decision to renew the production-sharing contracts for the oil and gas blocks should be taken five years before the contract was over because the return from the investment in the oil and gas sector usually required the same period of time.

“If there is no assurances for the investment return, the contractors often hold back their investment. This situation will decrease their production drastically, just like what happened in the WMO [West Madura Offshore] block concession,” he said.

The government’s decision to reject the extension of the contract, which was then held by South Korea-based Kodeco Energy, came only days before it expired in May 2011.

Pertamina is currently the operator of the WMO block.

Pertamina president director Karen Agustiawan has said that the state oil and gas company was “upbeat” it could handle the job as Mahakam’s block operator. (Amahl S. Azwar/ The Jakarta Post)