IOCs at loggerheads with Pertamina over Mahakam

Total and Inpex are unlikely to participate in Indonesia’s giant Mahakam Block once Pertamina takes over as operator in 2018 if the NOC maintains its present negotiating strategy, industry sources have told Interfax Natural Gas Daily.

French major Total and Japanese operator Inpex each hold 50% in the Mahakam production-sharing contract (PSC), which will end in late 2017. Following the expiration of the PSC, Pertamina will own 100% of the block, which has been producing since 1967. However, it is allowed to divest up to 30% of its stake to partners. 

Energy Minister Sudirman Said has been pushing Pertamina to involve both Total and Inpex from 2018 as they have decades of experience managing Mahakam that could help avoid a massive decline in output following the change in operators. 

But the foreign oil companies and Pertamina appear at loggerheads over a future deal. “There is a fundamental difference between how the NOC and Inpex see the proposed equity split. Pertamina wants Total and Inpex to farm in to the new PSC and is asking for payment. But we, the contractors, are staying on to help. We won’t stay if the NOC insists we have to pay for the equity in the new contract. Total feels the same,” a senior executive close to the negotiations at Inpex, who wished to remain anonymous, told Interfax Natural Gas Daily. 

Total and Inpex said they are reviewing the proposed terms and conditions of the new PSC – as well as considering the low oil price environment and the prospects for the ageing field – before taking any decision. 

But a former senior Total executive in Jakarta told Interfax Natural Gas Daily “Paris has all but given up on Indonesia. Total will not be interested in a minority share, not at this late stage, especially if it’s true the NOC sees it as a farm-in. The problem is Total can’t be sure about the management team Pertamina assigns to run the block. There was talk of preparing an orderly transition at least five years in advance, but it never happened. Moreover, we have all the uncertainty around the draft oil and gas law now. Nobody knows what role or powers Pertamina will be given when it’s eventually finalised. I expect Total will politely decline the offer.”

Pertamina spokesperson Wianda Pusponegoro said that the company was expecting a decision from Total and Inpex around June. “We are finalising all discussions regarding transfer arrangement and hopefully everything will be done based on the timeline in the heads of agreement,” she told Interfax Natural Gas Daily.

But only last month Total told reporters it may not make a decision this year. “The government has not given us a deadline on when we should make a decision. So it seems that we still have a while to study the block and other factors,” said Arividya Noviyanto, Total’s spokesperson in Jakarta. 

Upstream regulator SKKMigas put the asset value of the block at $4.79 billion at the end of 2015. This will shrink by 28%, to $3.45 billion, by the time Pertamina takes over, data from the regulator shows. Total and Inpex are being offered a maximum 30% split between them, which would be worth around $1.04 billion.

Taking control

Proven reserves at Mahakam, which is a major supplier to the nearby Bontang LNG plant, will drop to 76.5-85 billion cubic metres by 2017 and continue falling in 2018, to around 41 bcm. The block’s reserves amounted to 120 bcm at the end of 2012.

The appointment of Pertamina as operator at Mahakam illustrates Indonesia’s intention to take a firmer grip on the nation’s natural resources. The NOC will be given first right of refusal on blocks with expiring contracts. Other IOCs are waiting to see how the Mahakam negotiations unfold as they could be a sign of things to come. 

The Energy Ministry has provided Pertamina with exclusive access to its database of oil and gas PSCs that will expire within the next decade to help the NOC assess its potential future involvement. 

In total, 38 PSCs will expire in the next 10 years. Three of those – Offshore Northwest Java, the Lematang Block and the Mahakam Block – have already been renewed. 

Energy Ministry data shows eight more contracts will expire in 2018 – the largest number in a single year within the decade. These are the Tuban Block, which China National Petroleum Corp. and PetroChina have stakes in; Talisman’s Ogan Komering Block; China National Offshore Oil Corp.’s Southeast Sumatra Block; Total’s Tengah Block; ExxonMobil’s South Natuna Sea Block B and North Sumatra Offshore Block; and the East Kalimantan and Sanga-Sanga blocks. 

Pertamina will take over the East Kalimantan Block following Chevron’s departure in 2018. The NOC is also eyeing the Sanga-Sanga Block in East Kalimantan, which supplies Bontang LNG and has been operated by VICO – a JV led by BP and Eni – for almost 50 years. 

Pertamina aims to integrate facilities at the East Kalimantan and Sanga-Sanga blocks with those at Mahakam, which is also in East Kalimantan province.