French energy giant Total E&P Indonesia should remain involved in the operation of the Mahakam gas block in East Kalimantan, French Foreign Minister Laurent Fabius told Indonesia’s Energy and Mineral Resources Minister Jero Wacik on Friday, as he considers the block’s post-2017 future.
Fabius told a news conference that the Indonesian government must take into consideration “the fact that Total has been investing for years in this country [and] has many projects.”
The diplomat also pointed to a strategic partnership agreement signed between both the countries’ governments to bolster his claim for Total’s ongoing involvement in Mahakam after its contract expires in 2017. Total and Japanese partner Inpex both hold a 50 percent stake in the block and have requested an extension beyond 2017, but state-controlled energy firm Pertamina has sought to take control.
“We have signed, two years ago, strategic partnership and now we have implemented [it] fully. It is obvious that the sector of mining and energy is part and parcel of the development of our strategic partnership,” Fabius said.
Earlier in the week, Fabius told the Jakarta Globe that France “fully understands the legitimate wish of the Indonesian government to increase the participation of national companies in gas production.”
Following the meeting, Jero said Indonesia’s national interest remains the main consideration in the government’s future decision on the Mahakam block, but the interests of France, through Total, “must also be seriously considered.”
“The operations of a large block like Mahakam requires high technology and large investment, therefore we must handle [the issue] thoroughly,” the minister added.
In its effort to take control of Mahakam, Pertamina has proposed it be given a 51 percent stake in the block and Total pay the government $500 million for a 49 percent interest if it wants to continue to develop it. Total has been the operator of the block since 1997 in a 20-year production-sharing contract in which Inpex has a 50 percent stake.
When the contract ends, the government has the right to take control and hand it over to other entities, most likely state firms, or resell it. Pertamina is supported in its push by Dahlan Iskan, the state enterprises minister, who said control of Mahakam would help Pertamina reach its goal of becoming a world-class entity.
In the latest bid to reach a settlement, Total and Inpex offered a 30 percent interest to Pertamina in a transitional period five years after the current contract ends.
Jero said the future involvement of Pertamina in the block was important. “Pertamina was not involved for the first 30 years of the first contract and then for 20 years after, in the second contract extension. Therefore, the third contract extension should be a combination between Indonesia’s interests, through Pertamina, and those of Total,” the minister added.
Pri Agung Rakhmanto, an executive director at the ReforMiner Institute, a think tank, said that if the decision on Mahakam was not made this year the chances of it being politicized would increase dramatically given next year’s national elections.
“This is a big issue because it creates a dichotomy [dividing] the nationalists and foreigners. So, a decision must be made, or the political content would be much greater when it reaches 2014.” Pri Agung said the contentiousness of the Mahakam decision stemmed from inconsistency in the government’s energy security program and its unwillingness to make a bold decision.
Total senior vice president Jean-Marie Guillermo in July said the company had been in discussions with the government on the post-2017 arrangement since 2007. He accused the government of dragging its feet. Guillermo said the company planned to invest about $7.3 billion before 2017 to minimize production decline.
He added that while production now stands at roughly 1.8 billion cubic feet per day, production was likely to decline to around 1.1-1.2 bcfpd even if a significant investment was made.
Total and Inpex began operating the field in 1967. The field has already produced 2 billion barrels of oil and 17 trillion cubic feet of gas.