Business

Total to ‘stop’ Mahakam
block development amid
uncertainty

Uncertainty over the future of the oil-and-gas-rich Mahakam block off East Kalimantan created a new twist this week as Total E&P Indonesie said it would halt its expansion of new projects there.

The oil and gas contractor’s spokesman, Kristanto Hartadi, said on Friday that the country’s largest natural gas producer had aimed to spend around Rp 73 trillion (US$7.3 billion) in investment through 2017 to maintain the block’s production.

But, he added that the subsidiary of France-based giant Total SA would likely revisit the plan, as the Indonesian government had yet to confirm the extension of the Mahakam’s production-sharing contract (PSC).

“Next year is election year and we’re afraid that no one will make a decision [...] this uncertainty will definitely lead to a decline in production,” Kristanto said in a telephone interview. “This plan is not a ‘threat’ but merely a calculation based on a normal business plan.”

Total E&P Indonesie, which is responsible for nearly one-third of the country’s total gas production, had earlier expected to produce 1.1 billion cubic feet (bcf) of natural gas per day by 2017 solely from the block, if the $7.3 billion investment plan proceeded, according to Kristanto.

The block now yields 1.7 bcf of gas and 67,000 barrels of condensate per day.

“Gas output will decrease to a level of 0.8 bcf a day in 2017 without the planned investment,” he said.

It remains unclear whether Total will remain the Mahakam block’s operator, the position it has maintained since 1997 with a 20-year PSC, or hand the block over to state-owned oil and gas firm Pertamina.

Politicians and activists have demanded the government stand by Pertamina for the sake of “nationalism”.

The block currently supplies the majority gas needs of the Bontang liquefaction plant, which is operated by PT Badak NGL. Most liquefied natural gas (LNG) produced from the plant is exported to Japan.

The company now holds half the participating interest at the Mahakam block, while Japan’s Inpex holds the remaining 50 percent.

In July this year, visiting Total E&P senior vice president for Asia Pacific, Jean-Marie Guillermou, said the firm would propose a five-year transitional period after 2017, during which it would share its expertise with Pertamina.

Earlier this month, Inpex Corporation CEO Toshiaki Kitamura also mentioned the future of the Mahakam PSC in a meeting with President Susilo Bambang Yudhoyono.

Legal uncertainty remains a major impediment for oil and gas investors in Indonesia, a former member of the Organization of the Petroleum Exporting Countries (OPEC).

In May 2011, the government made a last minute decision regarding whether to offer South Korea’s Kodeco an extension or hand over the contract for the West Madura offshore block to Pertamina. The production at the block dropped significantly as uncertainty made Kodeco hesitant to expand.

The Indonesian Petroleum Association (IPA), which represents 90 percent of Indonesia’s upstream oil and gas activities, said it would seek confirmation from Total over the latter’s plan. “Such a plan will definitely risk the government’s revenue as well as domestic gas supplies,” said IPA chairman Lukman Mahfoedz.

Meanwhile, Deputy Energy and Mineral Resources Minister Susilo Siswoutomo said the government would not rush into any decision regarding the Mahakam PSC.

“The PSC is not expiring anytime soon. Relax,” he said via a text message.

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