EAST KALIMANTAN: With production declining at the Mahakam oil and gas block in East Kalimantan, state oil and gas company Pertamina is planning on assessing the risk of acquiring rights to operate the block, Petamina president commissioner Sugiharto said on Thursday, Jakarta Globe reported news.
The government is in the process of deciding whether to grant operator’s rights to Petamina for the Mahakam block, which is currently operated by Total E&P Indonesie.
The oil and gas block has been at the center of infighting among government officials and business observers. The squabble marks the significance of the oil and gas sector in Southeast Asia’s largest economy.
Marwan Batubara, an executive director at the think tank Indonesian Resources Studies (IRESS), has led a number of leading business figures in filing a petition requesting the government give the rights to Mahakam to Pertamina when Total’s contract ends in 2017.
The petitioners argued that Pertamina, as a state-owned enterprise, must become the operator of Mahakam block as it still contains a significant amount of reserves capable of generating revenues.
“The block still has some 12.5 trillion cubic feet of natural gas left, potentially generating a gross revenue of around Rp 1,700 trillion, under current natural gas prices,” the group said in a statement received by the Jakarta Globe.
But Petamina’s Sugiharto is urging caution, citing the risk of pouring funds into a project that may be past its prime.
“Pertamina, as a state-owned enterprise, must manage its assets prudently, meaning that we must distribute the risk into different productive assets with calculated risk,” said Sugiharto, a former state enterprises minister. “As we have issued global bonds, Pertamina must follow several covenants that compel us to carry out meticulous calculation before making any investment decision.”
He also noted that the Mahakam block’s rate of production decline was high, with roughly half of the nine existing trains still in operation. Trains are units that purify and liquefy natural gas.
“We cannot be greedy,” he said. “We must asses whether any investment plan will provide the ultimate return for Pertamina.”
He added that the risks surrounding the Mahakam block were huge, and that it would be foolish for Pertamina to assume all the risk itself. Instead, he argued, the risk should be distributed equally among shareholders.
“There are no single oil and gas fields with high risks that require large amounts of investment being handled by a single operator,” he cautioned.
However, he reinforced that Pertamina possesses the capability to operate a large-scale, complex project such as Mahakam. As an example, he cited the offshore North West Java block, which Pertamina purchased a 46 percent stake in from British energy giant BP in 2009, at a cost of $280 million.
“We have successfully operated Offshore North West Java block, we have champions in offshore development and I don’t think that Pertamina will encounter many problems in handling the Mahakam project,” he added.
“What the government must do is to encourage us [Pertamina] to carry out merger and acquisition overseas, thus improving Indonesia’s energy balance,” he said.