BP?s contract for Kangean gas field can not be extended as scheduled

The extension of BP Indonesia?s contract to operate and manage Kangean gas field in East Java has been delayed due to the change in the role of state-owned Pertamina in the country?s oil and gas development, Pertamina?s top official has said.

Pertamina?s director for production sharing management, Effendi Situmorang, said in Jakarta on Tuesday that the signing of the new contract had to wait the operation of the Implementation Body which would take over the regulatory and supervisory role of the state owned oil and gas company.

"The contract extension should be signed on July 29 but BP Indonesia requested us to delay it until the operation of the Implementation Body later this year," he was quoted as saying by Bisnis Indonesia on Thursday.

Under the new Oil and Gas Law, Pertamina will purely act as a business entity. Its regulatory functions will be taken over by two separate agencies. The Implementation Body will be responsible for upstream operation while the Regulatory Agency will be responsible for downstream activities.

BP operates and manages the Kangean gas field in East Java under a production-sharing contract with Pertamina. The company has been also given exclusive rights in the sale of gas in the province for 30 years from 1980 to 2010. But the company has often failed to meet the demand due to the decline in its gas production, causing a serious shortage of gas supply in the market.

The existing contract will, in fact, expire in 2007 but BP wants the government to renew it ahead of the initial schedule. In the new contract BP has also agreed to surrender its exclusive rights. (*)