T

he transfer process of the Mahakam gas block in East Kalimantan from current operators Total E&P Indonesie and Inpex to state-owned oil and gas company Pertamina will start in January next year, a year ahead of the termination of the existing contract.

'€œThe transition period for the Mahakam working area will be from Jan. 1, 2016, to Dec. 31, 2017, under a shadow operation mechanism,'€ according to a statement issued by the Energy and Mineral Resources Ministry last week.

Pertamina will operate Mahakam from Jan. 1, 2018, as the production sharing contract (PSC) currently held by Total and its partner will be terminated at the end of 2017.

During the transition period, the government would give the authority to Pertamina to procure equipment, materials and services as part of attempts to accelerate the work plan and budget processing for the operation of Mahakam post-2017, the ministry'€™s statement said.

Pertamina must also settle employment issues during this period.

The state-owned firm plans to maintain all the current employees of Mahakam, including the workers of supporting and service companies.

The valuation of assets is ongoing and a new PSC is expected to be signed before the end of the year.

'€œConsidering that the current contractor has been in Mahakam for 50 years, along with other support from the government, including accelerated depreciation, Total and Inpex, are expected to facilitate the transition period for Pertamina so production won'€™t be disturbed,'€ the ministry added.

While Pertamina welcomed the ministry'€™s orders, Total raised concerns over several points that could hamper Mahakam'€™s production continuity, thus making it incompatible with the basic proposal sent in 2013.

In 2013, Total sent the government a proposal regarding a five-year transition period of 2017-2022.

The period post its PSC expiry was seen as necessary so an operating body could be established and Total could transfer all required information and know-how in operating Mahakam to the new operator. The proposal was turned down by the government.

The ministry said Mahakam would be awarded to Pertamina. However, it has allowed Pertamina to decide whether to ask Total or Inpex to cooperate in the management of Mahakam after 2017.

The ministry has asked Pertamina to clear any plan by April 13.

For Pertamina, possessing a majority share (in Mahakam) was a must, Energy and Mineral Resources Minister Sudirman Said reiterated. If Pertamina later decides to cooperate with Total and Inpex in the operation of the Mahakam block, the percentage of their shares should be decided under a business to business arrangement, Sudirman said. The minister also appealed to Total to invite Pertamina'€™s involvement in the operation of its oil and gas blocks overseas as part of the deal.

He added that another option was Pertamina becoming a minority shareholder during the two-year transition period so that its entry into the block'€™s management could be smoother.

'€œThat will be a good option. However, all depend on discussions [between Total, Inpex and Pertamina],'€ he said.

Total is the operator of the Mahakam block and holds a 50 percent stake in it. The remaining 50 percent is held by Japanese Inpex.

'€œWe are still in discussions and there is evaluation process that we have to go through,'€ Pertamina president director Dwi Soetjipto said after the meeting.

The biggest gas-producing block is producing 1.744 million standard cubic feet per day, more than 30 percent of national gas production, according to figures from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas). The block also produces oil and condensate output at 68,537 barrels of oil per day.