Development of East Natuna block awaits incentives

The signing of production sharing contract (PSC) for East Natuna block between the government and the consortium members which will develop the block has not been realized as the owners of the block are still waiting for incentives from the government.

State owned oil and gas company PT Pertamina will partner with Petronas Carigali, ExxonMobil and Total E&P Indonesie in developing the massive gas block, located in the Riau Islands province.

The working interest holders of the block and the government - the Energy and Mineral Resources Ministry, Finance Ministry and State Enterprise Ministry - are still discussing the type of incentives to be provided as well as the terms and conditions of the contract.

President Director of Pertamina, Karen Agustiawan, was quoted by Investor Daily as saying that the development of the East Natuna block, previously known as Natuna D-Alpha, is difficult, as the field contains high level of carbondioxide, approximately at 70 percent.

The operator of the block will require advanced and thus more expensive technology to omit the carbon dioxide. As a result, out of 200 trillion cubic feet gas reserves at the block, only 45 trillion cubic feet would be able to be produced. Therefore, the contractors of the block want better incentives compared to other gas blocks.

The PSC contract for the block should have been signed by October 28, 2011. Karen is hopeful that the PSC contract will be signed this year.

Karen said Pertamina will act as the operator of the block. This does not necessarily means that Pertamina will hold largest working interest.

Pertamina has estimated that the development of the gas-rich East Natuna block will cost between US$20 billion and $40 billion due to high carbon dioxide content. The amount of investment would depend on several factors such as the expected gas production, the gas transportation model and other administrative costs.

On Aug. 19, the four companies and the government signed principles of agreement (PoA) related to the exploration and exploitation plan for the block.

Pertamina expects plan of development (PoD) for the block would be approved within next three years. (*)