Pertamina delays cooperation contract signing

State oil and gas company PT. Pertamina, which is originally scheduled to sign cooperation contract with the government last week, had again delayed the signing due to internal problems in the company, a government official said.

Rachmat Sudibjo, BP Migas chairman did not disclose what the internal problems are.BP Migas is a government arm responsible for upstream oil and gas industry.

According the new oil and gas law, Pertamina is obliged to sign cooperation contract- which is similar to PSC contract- by last year. Under the contract, Pertamina would be obliged to spin off each its E&P assets into single entity, thus disallowing Pertamina to consolidate the assets to ensure government?s revenue. The mechanism is called ?ring fencing?, which basically disallows exploration costs in one working area to be consolidated with exploration costs in another area, which is also controlled by the same entity.

Rachmat did not say when the signing would take place. Pertamina spokesperson Hanung Budya said currently the matter was still in pertamina's interanl discussion. He declined to give further comment.

An industry source who is familiar with the matter told Petromindo.Com that Pertamina?s board of commissioners are reluctant to sign the cooperation contract, due to the fact that Pertamina must completed the spin-off process one year after the contract was signed. ?That would mean Pertamina would not be able to set aside exploration fund as it would have limited capability to set aside fund from its producing E&P assets,? said the source. Pertamina?s ability to fund E&P investment is already limited as the company?s financial condition is not favorable. ?The new oil and gas law had made Pertamina lost lucrative retention fee an income from acting as seller for government shares of crude, therefore, it affected the company?s ability to optimize its exploration investment,? said the source.

The new oil and gas law stripped Pertamina?s privilege to supervise the country?s E&P industry, from which is used to get significant amount of revenue stream and privilege to sell government?s crude lifting. Those privileges are now in BP Migas? hand. (alex/godang)