Oil contract renewal should be negotiated 10 years earlier

Negotiations over the renewal of an oil production-sharing contract should ideally be made 10 years before the existing term is completed to provide a certainty to both contractors and the government, according to a senior executive of PT Gulf Indonesia Resources Supramu Santosa.

Supramu said that the decision whether an oil company is allowed to renew its contract should be made long before the contract is ended so that the company would be able to determine whether it should increase its investment or stop it at all.

"If a company knows that it will not be able to renew the contract, it will logically limit the spending only to routine matters," he told Neraca when he was asked to comment on newspaper reports about the sharp drop in the oil production at the Coastal Plain Pekanbaru (CPP) oil block.

According to newspaper reports, the production at CPP oil block, now operated by PT Caltex Pacific Indonesia, has falling sharply in recent weeks amid uncertainty in the future of the oil block. The government last year asked Caltex and Pertamina to form a joint venture to operate the oil block after the existing contract ends in August next year.

Negotiations over the establishment of the joint venture were, however, immediately halted early last month after President Abdurrahman Wahid said he preferred the Riau provincial administration to takeover the management of the oil block. (*)