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Smooth transfer sought in Mahakam block operation
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Energy mover: A technician of state-owned gas company PGN inspects gas pipelines at the company’s Pasar IX metering and regulating station (MRS) in Medan, North Sumatra, on Tuesday. PGN said earlier this year that it was aiming to develop an additional 1,680 kilometers of pipeline by the end of 2019 to deliver gas to more areas of the archipelago. (Antara/Irsan Mulyadi)
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takeholders of the Mahakam block in East Kalimantan have pledged their commitment to ensuring a smooth transition in the operation of the gas-rich block, given its vital role in maintaining the country’s energy security.
The commitment was reiterated as the government on Tuesday gave its approval for the revision of Mahakam’s production sharing contract (PSC) that will enable state-owned oil and gas giant Pertamina to conduct early investment in the block next year.
The early investment is needed as a legal base before Pertamina officially takes over Mahakam’s operations on Jan. 1, 2018 from the current operator French oil and gas giant Total E&P Indonesie, Energy and Mineral Resources Minister Ignasius Jonan said.
Total has a PSC that will end in late 2017. Under the contract, it holds a 50 percent stake in the block, while its Japanese partner Inpex controls the other 50 percent. Following the contract’s expiration, Pertamina will own a 100 percent stake in the block.
Jonan said the early investment was intended to prevent any sudden drops in oil production during the operator-transition period, as Mahakam remains the backbone of national gas production.
“Soon after the agreement is effective, the [transition] process will start. This is according to the President’s instruction that the Mahakam transfer of management should be completed as soon as possible,” said the newly appointed minister on Tuesday.
Jonan said the contract revision would regard Pertamina’s investment in the block as part of the state’s cost recovery after the effective due date in 2018.
Mahakam is currently the biggest gas-producing block in the country, it first started operations in 1967. The block produced 1.7 billion cubic feet per day (bcfd) of natural gas in the first quarter of the year, significantly higher than its 1.5 bcfd target of 2016. Furthermore, oil production is in line with the target of 65,000 barrels of oil per day (bopd).
Last year, Pertamina signed a PSC for the block after 2017. The Mahakam PSC will be operated under Pertamina’s newly established arm, Pertamina Hulu Mahakam, starting on Jan. 1, 2018. Pertamina will operate Mahakam for 20 years until 2038.
Deputy Energy and Mineral Resources Minister Arcandra Tahar said Pertamina’s work program and budget (WP&B) for the block would be carried out from Nov. 24 to 25 as all parties had already wrapped up a number of transition processes before the government gave its approval.
Pertamina plans to invest US$180 million for drilling activities in 19 wells in the block before Jan. 1, 2018 with the help of Total as the current operator.
With Pertamina’s early investment, Mahakam’s gas production should be maintained at about 1.2 billion standard cubic feet per day (bscfd), with condensate at 20,000 barrels condensate per day (bcpd) in the period of 2018 to 2019.
Total will also conduct drilling activities in the block’s six wells before the effective due date of the new management on Jan. 1, 2018 as part of the efforts to ease declining production.
As of June 16, Mahakam’s gas production stood at 1,747 million standard cubic feet per day (mmscfd), while its oil and condensate reached 69,186 barrels of oil equivalent per day (boepd), the ministry’s data show.
Pertamina president director Dwi Soetjipto said the company would use its internal cash to invest in the block. It will also work together with Total in the transition process in order to cushion the declining production rate.
“With our early investment, we’re doing our best so that the decline won’t be too sharp in 2018,” he said.
Total president director Hardy Pramono said Mahakam’s production next year was expected to hover around 1.4 to 1.5 trillion cubic feet (tcf), a decrease from 1.7 tcf targeted this year, as a result of the rapidly declining production rate.
However, he declined to discuss the talks on whether Total would continue participating in the new Mahakam contract. Although Pertamina is set to have a 100 percent share of the block, it is allowed to divest up to 30 percent of its ownership to partners.
“We are still discussing [the participation interest]. It is our last priority right now as we want to focus on managing the declining production rate,” he said.
