This was revealed by the senior vice president for upstream strategic planning, portfolio and evaluation at Pertamina, Meidawati, at an oil and gas seminar in Jakarta recently.

“We have a plan [to set up a new subsidiary] for the block. It is in the pipeline and we are still assessing the option,” she said, adding that a new unit would help the company speed up the adaptation process of managing the block.

CPI, a subsidiary of United States-based oil and gas giant Chevron, is still operating the block, which will be managed by Pertamina from 2021 to 2041.

CPI is operating it under the old production sharing contract (PSC) based on a cost recovery scheme, which will be replaced by a new method called a gross split.

Pertamina’s plan to establish a new subsidiary is based on its experience with one of its upstream units, Pertamina Hulu Mahakam (PHM), which took over the Mahakam Block in East Kalimantan from France’s Total E&P Indonesie.

Meidawati said Pertamina was also assessing the option of managing the Rokan Block with a partner as investors have shown an interest to jointly manage the block.

The government’s decision to choose Pertamina to operate the block in July caused a stir, leading to some alleging that rising nationalistic sentiment in the energy sector was behind it.

However, experts say setting up a new subsidiary to operate the block is a move in the right direction as long as the decision-making process emanates from Pertamina’s head office, adding that it would help it to simplify the operating process.

Pri Agung Rakhmanto, a researcher at Jakarta-based energy research group the ReforMiner Institute, said setting up a second tier company was an usual thing for Pertamina to do in light of its upstream strategy, adding that the move would not create problems due to it being directly controlled from head office.

Toto Pranoto, a state-owned enterprises expert at the University of Indonesia, said he believed that creating a new subsidiary was due to Pertamina’s need to ease its performance calculation and its PSC with the government.

Based on Pertamina’s previous experience with its upstream subsidiaries, Toto projected that the prospective Rokan subsidiary would likely produce less oil and gas compared to the block’s previous operator, Chevron, due to a long adaptation process in terms of technology use.

A case in point, he said, was the weak performance of Pertamina’s upstream subsidiary Pertamina Hulu Energy (PHE), which operates the West Madura Offshore (WMO) in Gresik, because the unit failed to maintain block oil production in 2011. Several reports at the time stated that production fell from an average of 14,000 barrels of oil per day (bopd) to only 1,200 bopd.

Meidawati acknowledged that it would be a challenge to maintain production at Rokan over the next three years as it had matured, or was entering a phase of decline.

“[…] There is something that we could learn there [in the Rokan Block] because it will be a test for us to manage this big block, of which oil production now has declined by 20,000 bopd in less than a year,” the Pertamina’s senior vice president said.

Pertamina is in the process of paying its US$784 million signature bonus to the government as one of the requirements in the Rokan Block deal, and the funds will be considered as non-tax revenue (PNBP).

It has vowed that the transaction would be finalized no later than this year.

Once the bonus has been transferred to the government, the official contract for Pertamina to take over the block will be signed.

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