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Jakarta Post

Pertamina one step closer to entering Mahakam block

Oil and gas giant Pertamina will soon get the go-ahead from the government and oil and gas regulator to carry out early investment in the gas-rich Mahakam block next year

Fedina S. Sundaryani (The Jakarta Post)
Jakarta
Wed, August 24, 2016

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Pertamina one step closer to entering Mahakam block

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il and gas giant Pertamina will soon get the go-ahead from the government and oil and gas regulator to carry out early investment in the gas-rich Mahakam block next year.

The government is planning to issue several legal instruments to enable Pertamina to invest in the Mahakam block before it officially takes over operation in 2018 from current operator Total E&P Indonesie.

The early investment is intended to prevent any sudden drops in oil production during the operator transition period, as Mahakam remains the backbone of national gas production.

Energy and Mineral Resources Ministry Oil and Gas Director General IGN Wiratmaja Puja said that a ministerial regulation and a decree from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) would be completed next Tuesday. Furthermore, an agreement is also set to be signed by Pertamina and Total next week over the arrangement of the early investment.

“This will be done in order to make sure that there’s no drastic drop [in production]. There will still be a decrease during the transition period, but it won’t be as drastic,” he said following a meeting at the Office of the Coordinating Maritime Affairs Ministry.

Total holds a production-sharing contract that will end in late 2017. Under the contract, it holds a 50 percent stake in the block, while its partner Inpex controls the other 50 percent. Following the contract’s expiration, Pertamina will own a 100 percent stake in the block

Mahakam is currently the biggest gas-producing block in the country. 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).

The oil and gas sector has been rocked by low crude prices in the past few years, leading to low exploration and production. The government has not increased the production target from this year’s 1.15 million barrels of oil equivalent per day (boepd) given the lack of new discoveries over the past couple of years.

Meanwhile, Pertamina executive director Dwi Soetjipto said that the company would invest US$1.5 billion in the second half of 2017 for the development and maintenance of 19 active wells. The investment will be included in the company’s work plan and budget (WP&B) proposal, negotiations with SKKMigas on which will start next month.

Pertamina hopes that the investment will be able to slow Mahakam’s inevitable decline in production, as the block is already mature.

“We’re not even the operators yet but we will invest while Total carries out the work. There needs to be a legal instrument, which we hope will be issued soon,” he said.

Dwi also explained that both Pertamina and the government were waiting for Total to decide within the next two weeks whether it would continue participating in the Mahakam production-sharing contract after the original was terminated.

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.

Pertamina’s best choice may be to involve the current contractors to minimize the decline in production following a change in operators.

However, Dwi said the company was ready to operate the block with or without Total and Inpex’s help.

Total vice president for corporate communications, human resources and finance, Arividya Noviyanto, also attended Monday’s meeting. However, he was reluctant to unveil the French-based company’s possible participation post-2017.

“We were only asked to update the current situation, specifically about the current transfer of ownership. Transfers like these take years,” he said.

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