Pertamina to Take Control of Indonesia’s Mahakam Oil & Gas Block
Indonesia’s state-owned energy company Pertamina and local governments will become the new operators of the Mahakam oil and gas block (located offshore in East Kalimantan) after existing contracts of current operators end on 31 December 2017. The Indonesian government announced on Friday (19/06) that it is to grant Pertamina a 70 percent stake in the Mahakam block, Indonesia’s largest oil and gas block. The current operators of the block are French oil giant Total SA and Japan-based oil firm Inpex Corp, each owning a 50 percent stake.
Indonesian Minister for Energy and Mineral Resources Sudirman Said stated that Pertamina will work together with the block’s current operators after 2017. However, Total and Inpex will see their combined share decline to 30 percent after Pertamina and regional authorities obtain the controlling 70 percent stake. Said also emphasized that Pertamina may sell part of its stake to other parties. Further discussions about the Pertamina take-over are planned next week. These discussions will also involve safeguarding the interests of local East Kalimantan oil and gas operators.
Dwi Soetjipto, Pertamina’s President Director, said that Pertamina is financially and technically ready to take over operations at the Mahakam block. Over the past couple of years many nationalists wanted to see Pertamina take over control of the Mahakam block (part of their aspirations to see Indonesia take a firmer grip on the country’s abundant natural resources). However, there are serious doubts about whether Pertamina has the technological skills and financial resources to (at least) maintain output at current levels. The block has sizeable operational costs and high production targets. It is estimated to require USD $2.5 billion worth of spending (each year) for Pertamina and its partners to maintain production at current levels. The Mahakam block is currently the main supplier for one of the world’s largest liquefied natural gas (LNG) plants in Bontang.
Currently, the Mahakam block generates about 1.7 billion cubic feet per day (bcfpd) of gas, nearly 25 percent of Indonesia’s total gas production, as well as 62,000 barrels of oil per day (bpd). The decision to keep Total and Inpex as partners for operations at the block is therefore considered a good one as it is expected to ensure continuity of production activities at the site. Existing workers at the block will not be fired but instead are to be transferred to Pertamina. Total and Inpex have been operating the Mahakam block since the late 1960s.
The local provincial and regency administrations will also obtain shares in the Mahakam block after existing permits of Total and Inpex expire at the end of 2017. However, the share composition remains unknown. It is expected that Pertamina will have the controlling stake (>60 percent), while local administrations obtain the remainder (<10 percent). Total and Inpex will have a combined 30 percent stake.
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