Total E&P Demands Decision on Future of Mahakam Gas Block

By : Jakarta Globe | on 8:16 PM July 11, 2013
Category : Business, Corporate News

France-based energy company Total E&P Indonesie has warned that a drastic decline in production at East Kalimantan’s Mahakam gas block looms unless the government spells on the project’s future beyond the 2017 end to the company’s contract.

The company’s senior vice president Jean-Marie Guillermo, who met with Energy and Mineral Resources Minister Jero Wacik on Wednesday, lashed out at the government on Thursday, seeking a response to Total’s submission regarding the fate of the block after the December 2017 end of the contract.

Guillermo said a discussion on what will happen post-2017 had been launched by Total in 2007, but that the government was dragging its feet.

“A decision has to be taken now,” he said in a statement. “I am not sure people actually realize what is at stake.”

The Mahakam block carries out nearly one-third of the country’s gas production.

Guillermo said the company planned to invest about $7.3 billion before 2017 to take steps to minimize production decline in the block.

“That is a lot of money and to justify such an investment, we need to have some visibility on what will happen to us after 2017 since a large part of the return on this investment will only be generated by the post-2017 production,” he said.

Guillermo said that current production stands at roughly 1.8 billion cubic feet per day (bcfpd), and that even if the necessary investments are made, production will still decline to around 1.1-1.2 bcfpd.

“But if we cut from the investment the portion of it which cannot be justified due to lack of visibility, the production might fall to 0.8 bcfpd,” he said.

Guillermo said the fight against production decline was a full-time job. Total E&P Indonesie and its joint venture partner, Japanese oil company Inpex, have since 2011 deployed increasingly expensive means to arrest the decline, including additional rigs and advanced technology.

The executive said the French oil company was proposing to organize a transition period of five years to transfer know-how and expertise to state oil and gas firm Pertamina, which he said was the only local company technically and financially able to tackle the management of the block.

“During this transition period, we need clear leadership and we are requiring a 35 percent interest for Total and for Inpex with the same terms and conditions as per today,” he said.

Guillermo said that after the five-year transition, it would be up to the government to decide whether Total and Inpex can remain part of the new consortium taking over the block.

The Energy and Mineral Resources Ministry did not respond to a request for comment on the statement.

Negotiations with the government have stalled mainly because of uncertainty surrounding Pertamina’s role. The government is in discussions with Pertamina and Total over a stake for the state-owned company in the block and expects to make a decision by the end of the year.

Pertamina has proposed that 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.

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