T

he Energy and Mineral Resources Ministry said it will grant state-owned PT Pertamina the valuable Mahakam block but will allow current operator Total E&P Indonesie to be a minority shareholder.

The head of the ministry'€™s performance controlling unit Widhyawan Prawiraatmadja said on Friday that a decision has been made to make Pertamina the new operator of the block.

'€œThe spirit is to give the block to Pertamina and we hope that Pertamina will consider cooperating with Total [Total E&P Indonesie]'€, Widhyawan said.

He added that the ministry was currently waiting for Pertamina to submit its proposal to convince the government that its operations in the Mahakam block would provide significant benefits for the country.

'€œIt is now between Pertamina and Total [to figure out] the percentage of [Pertamina'€™s] shares. We hope that they settle the matter fairly. One consideration is that Pertamina will have working areas overseas if Total still has shares in the block,'€ Widhyawan said.

The production sharing contract for the Mahakam block was signed in 1967 and was extended in 1997 for a 20 year period; the contract will be due for renewal in 2017. The fate of the Mahakam block has been a sensitive issue amid growing demands that a national company play a bigger role in handling the valuable resources in Indonesia.

Total is currently running the block and holds 50 percent of the shares. The remaining shares are owned by INPEX.

Total'€™s representatives Arividya Noviyanto did not immediately reply to a text message seeking comments on Friday.

Total has been calling on the government to decide whether or not it will extend or terminate the company'€™s contract in Mahakam. Given the high risk and high capital oil and gas business, companies are seeking certainty over their contract so that they can calculate the amount of investment to be poured into their project.

Total regularly spends US$2.50 billion a year to avoid declines in the Mahakam block'€™s output. The block is currently producing 1.7 billion cubic feet (bcf) or 69,000 barrels of gas per day. This level of output has made the block the biggest gas producing block in the country, causing worries that the current confusion about its future management will have a heavy impact on the country'€™s national gas production.

In a recent interview, Total'€™s president for the Asia-Pacific region, Jean-Marie Guillermou, said that the company had offered the government a five-year transition plan for Mahakam in 2013. The company argued that the transition period is necessary because any governmental decision on Mahakam will be made too late for anyone to act.

Under the proposed transition period, a consortium involving Total, Pertamina and INPEX will be established so that Total can transfer the know-how of operating the Mahakam block.

'€œAt the end of the transition period, there would be a fully Indonesian body ready to take over from Total. If [the government] grants an extension of the contract, we will also be ready,'€ Guillermou said.

Regarding the transition period, Widhyawan said that the decision would be reserved for Pertamina.

'€œWhat is certain is that Pertamina will be the operator. It also has to convince the government that any plans it makes will benefit the country,'€ Widhyawan said.