The government may award the rights to operate the Southeast Sumatra (SES) block to state-owned oil and gas giant PT Pertamina if the current operator does not ask for a contract extension, a senior official at the Energy and Mineral Resources Ministry said.

Widhyawan Prawiraatmadja, the head of the ministry'€™s performance control unit, which is in charge of production sharing contract (PSC) extensions, said early this week, he and officials from related institutions under the ministry had met the block'€™s operator, CNOOC SES Ltd., to discuss the future operation of the SES block.

CNOOC has not submitted any request for an extension for its SES block, he said, adding that if the company did not submit the contract extension proposal, the block could be handed over to Pertamina, which had long asked for it.

The offshore SES block'€™s target is to produce about 34,080 barrels of oil per day (bopd) this year, according to figures from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas). The SES'€™ contribution is expected to help the country achieve the national oil production target of 818,000 bopd as stated in the state budget for this year.

The current contract for the SES block is scheduled to expire in 2018. CNOOC, the operator, has a 65 percent stake in the block.

Under current regulations, a contractor is allowed to request extensions for their blocks 10 years before expiry. There are currently as many as 32 oil and gas blocks scheduled to expire by 2024. Their combined production accounts for 72.5 percent of the country'€™s current oil and gas output, according to data from SKKMigas.

Despite the number, only a few have submitted applications for extensions. Among the received proposals are ones for the Gebang block, the Offshore North West Java (ONWJ), the Lematang block, the Mahakam block and the Makassar Strait block.

The minister signed earlier this week a letter outlining his decision regarding Gebang and ONWJ, which will expire in 2015 and 2017 respectively, according to Widhyawan. The minister also inked similar letters for two blocks that expired in previous years, namely Pase block and Kampar block.

The minister has also decided that he wants Pertamina to take over the operation of the Mahakam block from the current operator, Total E&P Indonesie.

Extensions over expiring blocks have been an issue in the country, which is struggling to halt the sharp decline of its oil output as fields have been depleted while exploration work is hampered by a complex bureaucracy and unfriendly regulations. Certainty over the contracts is seen as necessary as contractors have to calculate whether to continue pouring money into the expiring blocks.

'€œWhile the new government has made some clear decisions on five blocks [Pase, Kampar, ONWJ, Gebang, Mahakam], four were already expired or very near expiry ['€¦] which means the decisions have not come early enough to allow investors to plan and manage their investment timelines without disruption. Further, the new government has yet to introduce a transparent system for managing PSC renewals in a timely, transparent fashion,'€ Rachel Calvert, the research firm IHS'€™ manager for petroleum sector risk said in an email.

The Indonesian Petroleum Association (IPA) director, Lukman Mahfoedz, noted that the oil and gas industry in the country needed investments of around US$40 billion to $50 billion per year in the next five years for exploration, for supporting the production of existing fields and for the development of megaprojects.

'€œIf new projects are approved, it is not impossible to attract $200 billion to $250 billion for the next five years. There are a number of projects currently in the FID [final investment decision] process,'€ he said.

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