FOCUS: Chance still big for Caltex to remain in CPP block

Who is going to develop the Coastal Plains Pekanbaru (CPP) block after the current contract on the block held by PT Caltex Pacific Indonesia expires next August?

The joint venture between state oil and gas company Pertamina and the Riau provincial administration? Maybe.

But, analysts say, Caltex, which has been for long staying away from the talks on the block and is considered by many as having been out of the fight for the block, still has a big chance to remain the developer or co-developer of the block in the future.

Irwan Prayitno, head of the House of Representatives' Commission VIII for energy and mineral resources, science and technology, environment said on Sunday the lingering dispute between Pertamina and the Riau provincial administration over share composition in the planned joint venture to operate the CPP block in the future will only benefit Caltex.

He said the continuing disagreement between both parties will put Caltex in a better position to gain the government's approval to continue operating the block.

"Only one party will benefit from the dispute, that is Caltex," Irwan told Petromindo.Com.

Pertamina, which has agreed to tie up Riau to develop the block, has asked the government to decide on the joint venture after failing to reach an agreement with Riau over the share composition of the planned joint venture.

Pertamina wants to have a 51 percent stake in the joint venture, but Riau insists to hold a 71 percent stake.

The operation of the block will be conducted in accordance with the production sharing contract (PSC) system, under which the developer will only keep 15 percent of the block's oil output and gives the lion share of 85 percent to the government. Thus, the planned joint venture between Pertamina and Riau will share the block's 15 percent oil output.

But, aside from the revenue share it will receive from the joint venture, Riau will also obtain 15 percent of the government's revenue from the block under the Intergovernmental Fiscal Balance Law No. 25/1999, which will come into force next year.

The government has formed a joint ministerial team - composed of Minister of Energy and Mineral Resources Purnomo Yusgiantoro, Coordinating Minister for Economy Rizal Ramli, Coordinating Minister for Political, Social and Security Affairs Susilo Bambang Yudhoyono and Minister of Home Affairs and Regional Autonomy Surjadi Soedirdja -- to seek for a solution to the dispute.

On Friday, Purnomo said the ministers had decided last week to give Pertamina a majority stake, or an at least 51 percent stake in the joint venture and he said efforts were underway to persuade Riau to accept the decision.

But, the Riau provincial council quickly called on the provincial administration to turn down the decision and stick to its initial demand of owning a 70 percent stake in the joint venture.

"Pertamina should change its position not Riau. It is fair enough to allow the province to have a larger stake in the joint venture, because Pertamina on the behalf of the government will receive 85 percent of the total production of the oil block," deputy commission head of the council Abdul Kadir Kalim was quoted by Riau Pos as saying on Friday.

It remains unclear if the councilor or many people in the province, who insist that the provincial administration should have 70 percent of the planned joint venture, are fully aware that under the Intergovernmental Fiscal Balance Law, the province will also get 15 percent of the government's 85 percent take of the block's oil output.

Caltex has thus far mostly remained silent about the controversies surrounding the CPP block.

Last year, it was still active in talks about a possible joint venture with Pertamina to continue developing the block, but the company has apparently decided to remain as a spectator of the wrangling between Pertamina and Riau after the province came to the negotiation table, trying to grab the lion share in the block.

Director general of oil and gas at the energy and mineral resources Rachmat Sudibyo said on Friday that Caltex had decided to withdraw itself from the fight for shares in the oil block.

"It has withdrawn itself after seeing slim chance to have a large share in the block," Rachmat said.

But, Caltex thus far had not yet made a statement that it had decided to quit the CPP block battle.

Company spokesman Renville Almatsier, in a letter to Kompas daily, said "for the moment" it was not involved in the negotiations between the government (Pertamina) and the Riau provincial administration.

"Caltex is waiting for the Republic of Indonesia government to make a decision," Renville said.

In a recent seminar in Jakarta, speaker of the Riau council Chaidir ruled out the participation of Caltex in the Pertamina-Riau joint venture but he said the joint venture was likely to allow the company to "participate" in the future development of the block if it was showing friendly attitude. He did not specify the type of participation.

Legislator Irwan and many analysts, including Pertamina's exploration and production director Gatot K. Wiroyudo and chief executive officer of local oil firm Medco Energy Hilmi Panigoro, contended that Caltex should participate in the future development of the block to keep the operation of the block efficient and to maintain its peak production.

Hilmi said Caltex has proved itself able to operate the block efficiently.

Caltex could produce more than 70,000 barrels of oil per day (bpd) at the block at its peak production years until last year, but the block's output had declined to less than 60,000 bpd at present due to the decrease in the investment made by Caltex. Caltex has cut long-term investment in the block due to uncertainties over its future role in the block.

Gatot said Caltex should participate in the development of the block. Otherwise, the new operator, be it a joint venture of Riau and Pertamina, will either have to pay the company some fees for the use of its facilities, including oil pipelines, or build its own facilities to support the operation of the block.

"This will add the operating costs of the block by US$1 and $2 per barrel," Gatot recently told Petromindo.

Irwan said Caltex still had a big chance to participate in the development of the block, citing the lingering dispute between Pertamina and Riau. If both parties fail to settle their dispute, the government is likely to appoint Caltex as the operator of the block,

He also insisted that from business point of view, any new operator of the CPP block, be it the joint venture of Pertamina and Riau, will certainly ask Caltex to participate in the development of the block to cut costs and benefit from its experiences. Otherwise, the operation of the block could fail.

"Based on business reasons, Pertamina, Riau and the government will find no alternatives but asking Caltex to participate in the operation of the block. The participation of Caltex will make the operation of the block efficient and highly productive.

"But, the government is likely to disallow Caltex to participate in the future development of the block. I think the government will only make a such a decision based on political consideration rather than economic reasons," Irwan said.

Irwan says there might be some people in the government who do not want Caltex to remain in the CPP block, but the refused to identify them.

"You already know them," Irwan told Petromindo. (Bodega/Epin)