T

he final say on the future of the Mahakam block will most likely be in the hands of President Joko '€œJokowi'€ Widodo as the companies with an interest in the oil and gas producing block have yet to find common ground to resolve the issue.

Energy and Mineral Resources Minister Sudirman Said confirmed on Tuesday he had sent a letter to President Jokowi, updating him about the Mahakam block.

'€œWe have informed [the President] about the stance [of Pertamina, Total and Inpex]. We are now awaiting the President'€™s deliberation. He may have broader considerations other than the commercial aspects,'€ Sudirman said, referring to the three companies having interests in the Mahakam block.

Sudirman added that the letter to the President included details on the proposals from Pertamina, Total and Inpex for future management of the Mahakam block. However, the minister declined to reveal the details.

Under the current production sharing contract (PSC), the Mahakam block, which is located in East Kalimantan, is 50 percent owned by Total and the other 50 percent by Inpex. The contract is scheduled to expire at the end of 2017.

The government has endorsed Pertamina to become the new operator of the Mahakam block, taking over the role from Total. Thus, Pertamina is expected to start operating the block in January 2018.

Due to the huge size of the block, Pertamina is considering asking Total and Inpex to stay on in Mahakam as partners. However, they have not settled a deal on the possible partnership.

'€œWe still have our own expectations [of getting a majority share]. In the end, we are expecting to find middle ground,'€ Pertamina president director Dwi Soetjipto said. Dwi acknowledged Pertamina was asking for a majority interest in the block but he refused to be more specific.

Given the Mahakam block'€™s contribution to state income, details on the future of its management and the smooth transition from Total to Pertamina are seen as crucial. Mahakam currently produces around 1.6 billion standard cubic feet per day of gas, or almost 25 percent of the country'€™s total gas production. It also produces around 62,000 barrels of oil per day in condensate output.

To maintain the production runs at the current level a lot of work is required with a total spend of approximately US$2 billion to $2.5 billion a year. As a mature block with a high degree of complexity, around 100 wells are drilled every year and approximately 10,000 well interventions are performed to maintain production.

The Energy and Mineral Resources Ministry has also asked for a transition period to begin as early as next year so that Pertamina will be able to perform several activities to smooth its takeover of Mahakam in 2018.

During the transition period, Pertamina is expected to be able to procure equipment, materials and services as part of efforts to accelerate the work plan and budget processing for the operation of Mahakam after 2017.

However, the existing PSC has no details on any transition period, making the discussion among the related parties more difficult.

'€œWe respect the existing contract. We will accommodate Pertamina but will respect the existing contract,'€ Total president director Hardy Pramono said earlier.

The fate of the Mahakam block has also been a sensitive issue amid growing demands for national companies to play a bigger role in handling the state'€™s natural resources.

Apart from the issue involving Pertamina and the existing contractors, the government is also facing a growing demand from the local administration in East Kalimantan, which wants a stake in the block.