Pertamina has officially taken over operations of the Mahakam block from Total E&P Indonesie and Inpex Corporation.
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Kompas/Hendra A Setyawan
A Pertamina oil refinery in Balikpapan, East Kalimantan, is seen from the air in this Feb. 5, 2015 file photo. Starting in January 2018, Pertamina will start managing the Mahakam block in East Kalimantan, taking over all operations from France’s Total Exploration & Production Indonesia and Japan’s Inpex Coorporation.
BALIKPAPAN, KOMPAS – State-owned oil and gas company Pertamina has officially taken over operations of the Mahakam block in East Kalimantan from France’s Total E&P Indonesie and Japan’s Inpex Corporation.
The right to operate the Mahakam block was transferred in a ceremony shortly before 2017 turned over to 2018 in Balikpapan, East Kalimantan. Total had operated the Mahakam block since 1967 and its contract expired on Dec. 31, 2017.
The operational transfer of the Mahakam block poses a challenge to Pertamina’s efforts to take over oil and gas blocks whose contracts are expiring. There are 38 oil and gas blocks in the country with contracts that will expire by 2026.
The Mahakam block was first returned to the government through the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) before being subsequently transferred to Pertamina.
"The operation of the block is full of challenges. The fields are not only complex, but also old, so its productivity can drop dramatically. However, this is a good time for Pertamina to prove that it is capable of managing large blocks," said Pertamina’s upstream director, Syamsu Alam, after receiving the right to manage the Mahakam block from SKK Migas on Monday (1/1) morning in Balikpapan.
The Mahakam block reached its peak gas production of 2.8 billion standard cubic feet per day (BSCFD) in 2009 and reached its peak oil production of 230,000 barrels per day in 1977.
The remaining proven gas reserves of the Mahakam block currently totals 4.9 trillion cubic feet (TCF) while its oil reserves total 57 million barrels. The block’s daily production of natural gas and crude oil respectively reached 1,286 million standard cubic feet per day (MMSCFD) and 51,700 barrels per day throughout 2017.
"Another challenge is how to maintain Total’s operational standards. The standards should be improved, if possible," said Syamsu.
Meanwhile, Bambang Manumayoso, the president director of PT Pertamina Hulu Indonesia, a subsidiary of Pertamina that manages the Mahakam block, said the company would prepare US$1.7 billion (Rp 23 trillion) investment in 2018 for the block. Pertamina spent about $150 million (Rp 2 trillion) on the oil block in 2017 to drill 15 development wells and other activities.
"The rate of decline in the Mahakam block’s oil and gas production is 51 percent per year. We will try to reduce the rate to about 30 percent by drilling more wells," said Bambang.
Bambang said that Pertamina also took over the employees previously involved in the operation of the Mahakam block. Total employed 1,919 employees for the Mahakam block. The Total employees who have joined Pertamina as the block’s new operator number 1,885 people, or about 98.23 percent.
Not ready
Based on Minister of Energy and Mineral Resources Regulation No. 37/2016, oil and gas producing areas can obtain a participating interest of 10 percent. The shares are granted to local government-owned enterprises (BUMD).
However, according to the East Kalimantan governor’s second assistant for the economy and development, Ichwansyah, the BUMD was not yet ready for the job. Negotiations are underway between the East Kalimantan provincial administration and the Kutai Kartanegara regency administration on how to take over the 10 percent participating interest.
Ichwansyah said that the local governments had agreed in principle to take the 10 percent participating interest. "There are many challenges (in forming a BUMD) and we need the support of all parties, including the central government, so that it can be realized," he said.
SKK Migas head Amien Sunaryadi hoped that East Kalimantan and Kutai Kartanegara governments could soon resolve their problem in establishing the BUMD. The longer it took to form the BUMD, the longer it would take until the local governments could begin enjoying the profit-sharing facility of the Mahakam block, he said. However, he assured that the issue would not affect the block’s operation.
"We are still waiting for the establishment of the BUMD which will take the 10 percent interest. There is no time limit for the establishment of BUMD, but the local governments will lose out if the BUMD is not formed immediately, because it can delay the profit sharing," said Amien.
Involvement
Meanwhile, Total has not agreed on its involvement in the Mahakam block operations. The government has indicated that Total can receive a participating interest of up to 39 percent. If Total agrees to this, Pertamina will have a 51 percent participating interest.
"The talks with Pertamina are still ongoing. We hope the decision will be made at the end of January," said Total’s president and general manager, Arividya Noviyanto.
Regarding the transfer of operations, Arividya said he believed Pertamina could maintain the performance of the Mahakam block. The block, which has been the largest gas producer since the early 2000s, is a major contributor to the country’s gas production. Gas from the Mahakam block contributes 13 percent of Indonesia\'s total gas production.
The contract for the Mahakam block was signed on Oct. 6, 1966 for a period of 30 years. Total, its operator, had a 65 percent participating interest, while its partner, the Inpex Corporation, controlled 35 percent.
In 1991, Total obtained a 20-year contract extension through March 30, 2017. The Mahakam contract was then extended for nine months through Dec. 31, 2017 to support the renewal of the liquefied natural gas sales contract.
