Pertamina unlikely to sign Mahakam block contract by year-end

State-owned oil and gas firm PT Pertamina is unlikely to sign the production sharing contract (PSC) for the Mahakam gas block in East Kalimantan by the end of this year as initially expected as negotiation with the government over a number of issues particularly on the share of production from the block is taking longer than anticipated, reports said Tuesday.

Pertamina Upstream Director Syamsu Alam said on Monday discussions over the production sharing were in progress but that it would be unlikely that an agreement could be achieved by the end of this year.

?The terms won?t be agreed this year, probably early next year,? Syamsu said as quoted by Kontan.

The delay may affect future operations of the gas block, The Jakarta Post said.

Late last year, the Energy and Mineral Resources Ministry announced that the government had decided to appoint Pertamina as the new operator for Mahakam, when the current contract ended.

The Mahakam block, the country?s biggest gas-producing block, located in East Kalimantan, is currently operated by France?s Total E&P Indonesie under a Contract due to expire in 2017. Total and Japan?s Inpex each hold a 50 percent stake in the block.

The government has allowed Pertamina to decide the percentage of the ownership it will give to the existing operators.

?If partners want to join, we will have to reduce their stakes, meaning that they have to purchase from us. If they don?t want to, it won?t be a problem for Pertamina,? Syamsu said as quoted by The Post.

Due to the size of the block, the government has been struggling to complete details of Pertamina?s new operating contract.

The ministry had previously aimed to start the transition period at Mahakam from Total and Inpex on Jan. 1, 2016, until Dec. 31, 2017.

During the transition period, Pertamina will have the authority to procure equipment, materials and services as part of it efforts to accelerate the work plan and budget processing for the operation of Mahakam post-2017.

The establishment of the transition period and the earlier signing of the new contract are necessary to avoid a decline in production when operations are officially transferred to Pertamina.

For this reason, Pertamina wanted to have the new PSC signed be-fore the end of the year.

The Energy and Mineral Resources Ministry?s director for up-stream oil and gas, Djoko Siswanto, said the government and Pertamina were still working on the details of the share of production that would be received by the state under the new PSC.

?We haven?t reached an agreement,?Djoko said to The Post.

He earlier pointed out that the government had proposed several concepts for Pertamina, including various splits for different wells.

Under the current production-sharing scheme, the split from oil production is usually 85 percent for the government and the remaining 15 percent for the contractors. Meanwhile, for gas, the split is usually 70 percent for the government and 30 percent for contractors.

The uncertainty regarding details of Mahakam?s management post-2017 coupled with the ongoing weak oil price have led Total E&P, the current operator of the block, to reduce its capital spending for next year.

Total E&P?s vice president of finance, human resources, general services and corporate communication Arividya Noviyanto said that around US$1.1 billion would be invested next year, which would be significantly lower than the average $2 billion spent in previous years.

?Production is expected to be 1.4 billion cubic feet per day [bcfd] of gas and 56,000 barrels of oil per day [bopd],? he said as quoted by The Post.

This year, the block is expected to produce 1.68 bcfd in gas and 69,000 bopd of oil.(*)