W

ith Total E&P Indonesie'€™s contract in the Mahakam block set to expire in 2017, future management of the oil and gas block could be handled through a partnership, given its huge size and value.

The Energy and Mineral Resources Ministry'€™s acting director general for oil and gas, IGN Wiratmaja, said the office had discussed options for a partnership deal, including details regarding the majority stake being held by state-owned oil and gas company PT Pertamina; operatorship by the state firm; and details on a possible partnership with the current operator, Total E&P.

Wiratmaja added that a 10 percent participating interest would likely be owned by the East Kalimantan provincial administration.

'€œIt is possible there will be three companies; Pertamina, Total and the East Kalimantan administration [through its locally owned firm],'€ Wiratmaja said on Wednesday.

He added that the ministry expected the local administration'€™s company would represent its own interest and would not be backed by private players.

'€œWe hope no private players ride on the local administration,'€ he said.

Due to the high risk and level of capital needed to manage the block, a firm decision from the government regarding the future block'€™s future management is needed.

Late last year, the Energy and Mineral Resources Ministry announced a principle decision that the Mahakam block would be granted to Pertamina, under the condition that the state-owned firm submit a proposal detailing its plan to manage the block to the utmost benefit of the country.

The Mahakam block is currently operated by Total E&P Indonesie. The local arm of the French firm, Total SA, holds a 50 percent stake in the block, while the remaining 50 percent belongs to the Japanese firm, INPEX.

The fate of the Mahakam block has been a sensitive issue amid growing a demand that a national company play a larger role in handling the country'€™s valuable resources.

Pertamina has said it expected the government to prioritize the company as main operator of expiring blocks in the country so that it would hold a bigger share of domestic blocks.

Unlike many national oil companies in other countries which are majority holders, Pertamina controls just 23 percent of domestic blocks. The company hopes to strengthen its hand by upping that ratio to at least 50 percent within the next five years. Ownership of the Mahakam block would help the company to meet that target.

However, on the technical side, becoming the block'€™s single operator would present challenges for Pertamina. To maintain production levels of around 1.7 billion cubic feet (bcf) of gas per day and an average condensate of around 62,000 barrels of oil per day, the Mahakam block requires roughly US$2.5 billion in yearly investment.

Pertamina president director Dwi Soetjipto has said the company was open to partnerships with private players to maximize the output of the block in the transition period. Given its size, any disruption would affect national production.

'€œWe have asked that the government to appoint us as the main operator. From there, we will forge cooperation with other companies to maximize the value of the block. Potential partners will be any private companies. We need to see whether it is feasible for them [Total and Inpex] to remain in the block,'€ Dwi said.