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NEW UPDATES Asean Affairs   26 February  2016  

Pertamina starts preparations for Mahakam gas block

State-owned oil and gas firm Pertamina has begun preparations for the operation of the gas-rich Mahakam block, which it will take over late next year.

Pertamina upstream director Syamsu Alam said setting up the work plan earlier would help the company carry out a smooth transition in the block’s operatorship from current operator Total E&P Indonesie.

“We expect to settle all matters regarding data transfer, covering surface and subsurface data, by mid-year. Thereafter, we will start planning programs and budget,” Syamsu said.

Total E&P Indonesie holds a production-sharing contract that will end in late 2017. Under the contract, Total holds 50 percent interest in the block while its partner Inpex owns the other 50 percent.

Pertamina will own 100 percent stake in the block in early 2018. However, it is allowed to divest its ownership to partners by up to 30 percent. Involving the current contractors, which have experienced managing the block, is the top option so that there is no massive decline in production following the change in operatorship.

However, Pertamina, Total and Inpex have yet to reach a deal on future partnership.

“We don’t care about the candidate partners. The work plan and budget planning will go on. If in the meantime we reach a deal, we will share down the 30 percent at a certain price,” Syamsu said.

The drafting of the work plan and budget is expected to be concluded before mid-2017, when the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) starts preparations to carry out discussion with oil and gas contractors for respective working areas.

Mahakam is currently the biggest gas-producing block in the country. The block is targeted to produce 1,226 million standard cubic feet per day (mmscfd) this year, or around 20 percent of the national gas production target.

Total’s president director, Hardy Pramono, said his company would continue to evaluate whether it would maintain its presence in the block.

“We have a head of agreement [with Pertamina] and we are heading to a transfer agreement. We will see the details in the transfer agreement in June or July,” Hardy said.

He added that his company had yet to discuss valuation matter on the 30 percent stake Pertamina may offer. “The essence is that Pertamina will be the operator starting in 2018. We have to prepare for how Pertamina can be ready for that,” Hardy said.

In late December last year, Pertamina signed a production-sharing contract for the block after 2017. Mahakam PSC will be operated under Pertamina’s newly established arm, Pertamina Hulu Mahakam, starting on Jan. 1, 2018. Pertamina will operate Mahakam for 20 years until 2038.

Mahakam has been in operation since 1967 and is seen as a mature block with a significant natural declining
rate. Massive works investment has been conducted every year to ensure the block produces at a stable rate. The current contractors spend around US$2 billion per year on the block.

The investment, which is almost a half of Pertamina’s $5 billion spending per year, has increased the significance of an operation partnership in the future.

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