Govt may not extend BP gas field contract: Report

Indonesia may not extend a BP production sharing contract in East Java's offshore Kangean natural gas block which expires in 2010, a senior official of state oil company Pertamina was quoted by Reuters as saying Monday.

The move is related to rights the contract gives to BP to supply natural gas in East Java, a market Indonesia would like to see open to other suppliers due to fear BP may run short of gas.

Last year BP asked Pertamina to extend its Kangean contract because one of its commercial gas fields was depleted and it wanted time to explore further areas of the block, which it believes contain more natural gas.

BP has the preference right to supply natural gas amounting to around 320 million cubic feet per day from the Kangean block to East Java customers, including state power company PT Perusahaan Listrik Negara.

"The government may not extend BP's Kangean contract, because BP has preference right to supply natural gas to East Java. Under the agreeement, the right was granted during the 1980s and has put Pertamina in a difficult position to arrange gas supplies now," the official told Reuters.

"Mines and energy minister (Purnomo Yusgiantoro) has expressed his surprise about the preference right on supplying gas in East Java for BP. He thinks no such rights should be given anymore," he said.

But he added that the government would be very careful about any revocation of the right because of possible arbitration.

"The only safe measure is not to extend the contract of the Kangean block and then in line with that terminating the BP right in supplying gas to East Java," he said, adding that officals of Pertamina and the government were still in discussions about the issue.

Under the contract, signed in 1980, Kangean was originally operated by Arco but was taken over by BP when it acquired the U.S. company in 2000.

The official said there are many companies ready to supply natural gas to East Java or other parts of the island both for power companies or industries.

They include Exxon Mobil , Amerada Hess , and Pertamina which have enough new natural gas reserves, he said, adding that demand for natural gas was expected to increase in the future on Java.(*)