The government plans to auction off the East Kalimantan oil and gas block immediately after state-owned firm Pertamina refused to take it over from its current operator next year.
The local unit of United States energy giant Chevron Corp. is operating the block until October 2018 and has decided not to extend its contract. The government has offered the block, one of the country’s top 10 oil producers, to state-owned oil and gas firm Pertamina, in addition to another seven blocks.
However, Deputy Energy and Mineral Resources Minister Arcandra Tahar confirmed that Pertamina. had refused to run the East Kalimantan block following a thorough review of all eight on offer.
“Based on my understanding, it [Pertamina] is planning to return [the East Kalimantan block] and [therefore] it will be put up for auction as soon as possible. There is no more time and it must be auctioned off immediately,” he told reporters on Friday.
The Energy and Mineral Resources Ministry previously assigned Pertamina to take over eight blocks - consisting of East Kalimantan, Attaka, North Sumatra oifshore, Ogan Komering, Sanga-sanga, Southeast Sumatra, Tengah and Tuban once their existing product sharing contracts (PSC) expire in 2018.
The East Kalimantan block produced 18,200 barrels of oil per day (bopd) in the first half of the year, according to data from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas).
Like the Offshore Northwest Java block Pertamina recently acquired, the government expects the firm to operate the eight fields using the newly introduced gross split scheme.
In response to mounting complaints from business players over its economic infeasibility the scheme, passed early this year, was recently revised to provide better incentives for contractors.
However, the profit split between contractors and the government still depends on a few variables, including global oil prices and the stage of production. While the government touted this new scheme as a win-win solution for all stakeholders, Pertamina’s subsidiary PT Pertamina Hulu Energi (PHE) has been visibly struggling wlth the absence of reimbursement from the government for exploration activities, which was covered by the previous cost-recovery scheme.
After longdrawn negotiations with the government, PHE’s portion was finally raised to 73.5 percent and 81 percent for the oil and gas fields, respectively, from an initial 57.5 percent and 62.5 percent. Pertamina’s refusal to take over the East Kalimantan block may not bode well for the governments already grim auction of oil and gas blocks.
The Energy and Mineral Resources Ministry recently planned to extend the deadline of this year’s auction to November for the second time. The ministry’s oil and gas director general Ego Syahrial attributed the extension to the revision of the ministerial decree regulating the gross-split scheme.
In response to Arcandra’s statement, Pertamina upstream director Syamsu Alam said that the firm would focus on the seven other blocks. However, Pertamina spokesman Adiatma Sarditjo said Pertamina was still discussing the issue internally and had yet to communicate its stance formally to the government. He declined to elaborate further.
Experts have speculated that Pertamina’s lack of interest was a result of the commercial inviability ofthe block’s operation under the gross-split scheme. ReforMiner Institute founder Pri Agung Rakhmanto said that while the East Kalimantan block’s economic feasibility was relative compared to other blocks in Pertamina’s business portfolio, the gross-split scheme would perhaps not cover certain costs.
“There is a possibility that there is a large cost component or obligation that is not economically feasible under the gross-split scheme, even with the additional split [in the new revision],” he told The Jakarta Post on Friday.
The latest ReforMiner Institute’s report concludes that the lack of clarity on taxation under the scheme remains a major hindrance to investors who are looking to grab a slice ofthe upstream pie.
Jakarta Post, Page-13, Saturday, Sept 23, 2017
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