T

he Riau provincial administration'€™s hopes of solely managing the Siak block oil well following the end of Chevron Pacific Indonesia'€™s production sharing contract (PSC) in November 2013 have been dashed, after the energy and mineral resources minister decided to hand the operation of the oil block to state oil and gas firm Pertamina.

However, the Riau administration has yet to drop its request to participate in the oil block, which is located in Rokan Hulu, Rokan Hilir, Bengkalis and Kampar regencies.

Pertamina'€™s recent decision to transfer the operation of the Siak block to its subsidiary, PT Pertamina Hulu Energi, was warmly welcomed by the provincial and regency administration, as it could pave the way for a Riau provincial enterprise to be involved directly in the operation of the oil block.

At present, the block produces between 1,600 and 2,200 barrels of crude oil daily, about 0.6 percent of Chevron'€™s total production. The block is among 29 PSCs that expire between 2013 and 2021.

Chevron had been given six months to temporarily operate the Siak block before the signing of a new contract with the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas), which operates oil and gas exploration and production activities.

The deadline allowed the Riau provincial administration to lobby the Energy and Mineral Resources Ministry, the State-Owned Enterprises Ministry and Pertamina to be allowed to participate in the oil block, Riau administration economic administration office head Syahrial Abdi told The Jakarta Post on Thursday.

The first scenario would be asking the central government to allow the local administration to operate at least 30 percent of wells in the block.

'€œThe collaboration is the same as the Cepu block oil well, in which the provincial enterprise could immediately become the operator. Wells to be managed either by Pertamina or the enterprise will be decided later,'€ said Syahrial.

'€œRiau is ready and has been proven able to solely operate the Langgak block, handed over by Chevron. From the technical aspects, there is no problem because we will only resume operating the well, which has been in production for more than 50 years,'€ he said.

'€œThe Riau government and the administrations of the four regencies where the Siak block is located have also agreed to involve foreign investors in the operation of the oil block,'€ he said.

'€œIf we get a minimum share of 30 percent, the potential dividend from Siak in the third year is estimated to reach between Rp 30 billion [US$2.5 million] and Rp 42 billion annually,'€ he added.

Should the first scenario fail, the second strategy of the Riau administration would be to form a consortium, or a joint operation agency (BOB) with Pertamina to jointly operate the block.

Such a joint operation has already been implemented in Riau, with the Coastal Plains Pekanbaru block in Siak regency by PT Bumi Siak Pusako and PT Pertamina Hulu.

Should both offers fail, the Riau administration must accept the participating interest scheme, which allocates 10 percent interest in an oil and gas block to the producing region.

'€œIt'€™s the worst-case scenario. Obviously, Riau will not be satisfied because it has requested to become the sole operator from the start. If we get only 10 percent, Riau won'€™t need to struggle because it will automatically obtain the right,'€ he said.