JAKARTA. After years of uncertainty, the government has decided to appoint state-owned oil and gas company Pertamina to take over the Mahakam gas block when the current contract — held by French oil giant Total — expires in two years.

“The government has made a clear decision that it will give the Mahakam block to Pertamina. Regarding the percentage of ownership, we will let Pertamina negotiate [with partners], however, we want Pertamina to have majority [control],” Energy and Mineral Resources Minister Sudirman Said told reporters during a visit to Aceh on Monday.

The Mahakam block, the country’s biggest gas block in terms of production, is operated by Total E&P Indonesie. 

Under a production-sharing contract set to expire in 2017, Total holds a 50 percent participating interest while Japan’s Inpex has the other 50 percent.

Total had earlier proposed a five-year transition in transferring the block’s operations after the termination of its contract. 

The company said the transition period would be important to ensure a smooth transfer from Total to Pertamina.

The block’s future has become a sensitive issue, particularly amid rising resource nationalism, which demands a bigger role for Pertamina in operating oil and gas blocks throughout the country. 

Former president Susilo Bambang Yudhoyono’s administration was criticized for not making a decision on the block, creating uncertainties over investment and future production.

Late last year, under new leadership, the Energy and Mineral Resources Ministry reached a provisional agreement to allow Pertamina to take over the Mahakam block.

However, a final decision was dependent upon whether Pertamina delivered a convincing proposal to operate the block. The proposal was submitted by Pertamina last week.

Sudirman added that the ministry expected Pertamina to start operating Mahakam before 2017. The firm’s early involvement in the block’s operation was necessary to ensure a smooth transition from the previous operator, according to Sudirman.

The transition plan is one of several technical details being worked on by the ministry and Pertamina, according to the ministry’s acting director general of oil and gas, IGN Wiratmaja.

‘There are a lot of details, including the transition, share [of the block], investment and signature bonus,” Wiratmaja said in a text message.

Pertamina upstream director Syamsu Alam said Pertamina estimated it would need about US$25.2 billion in investment to operate Mahakam for the next 20 years.

‘That’s a rough number and could be bigger. However, we have to prepare the financing mechanism to support the investment so that we won’t see any disruption in the level of production from Mahakam,” Syamsu said over the telephone.

Total earlier said it had to spend around $2.5 billion a year to operate the complex block and maintain its level of production. The block provides 1.6 to 1.7 billion standard cubic feet per day of gas and an average condensate of roughly 62,000 barrels of oil per day.

As many as 100 wells per year are drilled in the block and around 10,000 well interventions are performed annually to maintain production. The block also requires more than 500 logistical support vessels to operate. The size of the task at hand has raised concerns over Pertamina’s ability to manage the block.

However, Syamsu said his company was capable of managing the block and highlighted the importance of Pertamina doing so.

“The block is necessary for the growth of Pertamina, including its future production target,” he said. (Raras Cahyafitri)

Editor: Yudho Winarto