BPMIGAS may endorse Mahakam block contract extension

Upstream oil, gas watchdog BPMIGAS signaled on Thursday its might endorse contract extension of East Kalimantan giant gas block Mahakam PSC ? operated by French giant Total SA - which contract would expire in 2017.

BPMIGAS Chairman Kardaya Warnika told reporters that endorsement might come as Indonesia is close to seal deal to extend liquefied natural gas (LNG) contract from Mahakam PSC to a group of Japanese customers known as Western Buyers. Under the deal, Mahakam block will supply 25 million tonnes of LNG starting 2011 at the rate of 3 MTPA in the first five years and 2 MTPA in the following years.

?Mahakam Block contract could be extended if it has gas contracts that span beyond its current contract ? in this case 2017. This is a normal procedure for contract extension,? Kardaya said.

Under the regulation, Ministry of Energy and Mineral Resources and has the authority to grant contract extension based on BPMIGAS recommendation.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro has also signaled the government might agree to extend contract on the condition that it would get bigger benefits including better split than the current 70 percent for gas and inclusion of state oil and gas company Pertamina as interest holder in the block.

Total has been trying to get 15 years extension Mahakam PSC, where Total and Japanese firm Inpex have equal interest. Total and Inpex plan to invest around US$8 billion in the next ten years on the Mahakam PSC to continue to put on stream the remaining undeveloped hydrocarbon resources in the block.

As part of its effort to win contract extension, Total has also agreed to allocate at least 1.5 million tonnes of LNG per annum to domestic customers including state electricity firm PLN and state gas distribution firm PGN which plan to set up LNG receiving terminals in Java. PGN CEO Soetikno earlier said it and PLN would kick off negotiation with Total to seal deal by the end of this year the latest.

Kardaya said that BPMIGAS has ordered Total to seal deal with PLN and PGN first before closing similar deal with Western Buyers.

Mahakam PSC is currently Indonesia?s gas number one gas producer with production of around 2.6 BCFD and 90,000 barrels of liquids. Mahakam supplies more than 75 percent of Bontang LNG plant gas requirement. (godang)