Pertamina steps up bid for control of Indonesia's biggest gas field

Wed May 21, 2014 7:19am EDT

Related Topics

* Total's contract to operate Mahakam expires in 2017

* Indonesia gives right to Pertamina to take over expiring contracts

* Pertamina has sent 3 letters to Indonesia govt on Mahakam - exec

By Fergus Jensen and Wilda Asmarini

JAKARTA, May 21 (Reuters) - Indonesian national oil and gas firm Pertamina said it is pushing the government to gain control of the country's top gas producing field that is currently operated by Total of France whose contract is due to expire in 2017.

Indonesia only allows oil or gas firms to extend their contracts once for up to 20 years, and gives Pertamina the right to take over expiring contracts if it wants them.

Total has warned that output from the Mahakam field in East Kalimantan, currently at around 1.66 billion cubic feet per day, could drop sharply if it is not allowed to extend its current contract beyond 2017.

Total has promised to invest up to $7.3 billion before then if the contract is renewed, but energy resources are highly politicized in Indonesia and with elections approaching in July no decision has been made.

Pertamina, which plans to increase output nearly five-fold by 2025, has written letters reminding the government it is ready to take over the Mahakam field.

"We reaffirmed we are ready to operate it," Pertamina upstream director Muhammad Husen told Reuters on the sidelines of the annual Indonesia Petroleum Association (IPA) conference in Jakarta, adding that his firm had sent three letters so far.

"Maybe the government needs time to consider it."

Husen declined to comment on the exact contents of the letters or on how much Pertamina would spend on the field.

Total said it was aware of the letters, but was still waiting for a response from the government to its latest proposal on the Mahakam field that it submitted in July, 2013.

WAITING GAME

IPA president Lukman Mahfoedz urged the government to produce a "clear and transparent" regulation on contract extensions that takes into account the roles of Pertamina, international oil companies and Indonesian oil and gas firms.

"We are waiting," Mahfoedz said, referring to the high risks and lack of legal certainty energy investors face in Indonesia.

Over the next five years around 20 of Indonesia's production-sharing contracts will expire, he said, accounting for around 635,000 barrels of oil equivalent per day (boepd) in 2013, or 30 percent of Indonesia's total oil and gas output that year.

The government is preparing regulation that would simplify its processing of expiring oil and gas contracts, Energy and Mineral Resources Minister Jero Wacik told reporters.

"In this era of democracy when they want to extend one contract the noise they make is extreme," Wacik said.

"Previously there wasn't very clear regulation," he said, adding that the new rules would eliminate lengthy case-by-case negotiations. However, Wacik did not say when the new regulation would be ready.

Of the 20 contracts that are due to expire, around 10 have requested extensions "and we are processing these", the chief of Indonesia's oil and gas regulator (SKKMigas), Johannes Widjonarko, told reporters adding that some would be handed to Pertamina.

Eni will likely be given a permit to continue exploring a block it took over from Hess Corp in Indonesia's East Timor, beyond a four-year limit, SKKMigas commercial director Widhyawan Prawiraatmadja told reporters.

"I think a company like ENI doesn't have problem with their commitments, so most likely we will give them more time for exploration," Prawiraatmadja said.

In 2014 Indonesia budgeted oil and gas output to reach more than 2.1 million boepd, although this figure is expected to be revised down because of delays in developing ExxonMobil's Cepu block in East Java. (Editing by Muralikumar Anantharaman)

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