Technical contracts in oil production activities may be removed

Technical assistance contract (TAC) between state owned oil company Pertamina and other contractors should be removed because such cooperation arrangements are no longer relevant following the removal of Pertamina?s exclusive rights, according to the head of the government?s Implementation Body in oil and gas activities (BP-Migas).

"The technical assistance contracts should be changed because the status of Pertamina is the same with other oil and gas contractors," the head of BP-Migas, Rachmat Sudibyo, was quoted as saying by Koran Tempo daily on Thursday.

If the TAC is removed, the government will no longer bear part of cost recovery and other production costs. Such expenses should be included, as part of the overall spending of a contractor, not as part of the net production that should be shared by the contractor and the government, he said.

He said, however, that the change would only affect technical contracts, which have been expired. "While the new contract should be changed because it is no longer relevant," he added.

The technical contracts were awarded by Pertamina to foreign or local companies to operate and manage marginal or old oil and gas fields. Under the contract, Pertamina is responsible for the management of the oil and gas fields while the contractor is responsible in covering all the operating costs. In this contract, the government receives 65 percent of the oil production, while Pertamina and its contractor gets the other 35 percent. For comparison, in the production sharing contract (PSC) arrangement, the government receives 85 percent of the net oil production while the contractor gets the remaining 15 percent.

Rachmat said that the technical contract awarded to ExxonMobil Indonesia to operate and manage the Cepu oil block in Central Java should be changed if the company wanted to extend the contract which would be expire in 2010.

"Such contracts could be changed into joint venture or other forms of joint operations," he said, adding that Pertamina, under the new contract, will have an equal status with the contractor both in covering the operating costs or in sharing the 35 percent of the production that must go to the contractor.

BP-Migas was established recently in line with the new oil and gas law, which among others, removes Pertamina?s exclusive rights. The new agency has taken over Pertamina?s regulatory role in managing production sharing contract (PSC) with oil and gas contractors. The government will also establish another agency, Regulatory Agency, to take over Pertamina?s regulatory task in down stream activities. (*)