Secure sovereignty, avoid dispute: Jokowi

JAKARTA - President Joko "Jokowi" Widodo has given approval for state oil and gas firm Pertamina's ambitious plan to take over the gas-rich Mahakam block, but warned the firm to maintain good communications and avoid misunderstandings with the energy stakeholders that have huge interests in the block.

The state-run firm must manage the Mahakam block as part of the government's mission to secure "energy sovereignty", Jokowi stated on Friday.

"Communications with all the stakeholders must be maintained to avoid misunderstandings," the President said.

"Legal issues that are related to the draft of the new contract, including its terms and conditions with other parties, must be prepared as soon as possible," he demanded.

Pertamina is slated to become the new operator of Mahakam, the nation's largest oil and gas block, taking over from French oil giant Total SA and its partner, Japanese oil company Inpex Corp., whose contract will expire by the end of 2017.

The block, located offshore of East Kalimantan, contributes significantly to state revenues as it generates approximately 1.6 billion cubic feet per day (bcfpd) of gas, or nearly 25 per cent of the total national gas output, in addition to 62,000 barrels of oil per day.

Under the current production sharing contract, the block is 50 per cent owned by Total and the other 50 per cent by Inpex.

Based on the government's proposal, Pertamina and the regional government would control 70 per cent, with the remaining 30 per cent will be offered to Total and Inpex as the expertise of the existing operators might still be needed given the huge size of the block, combined with the sheer complexity of operating there.

Total so far has yet to respond to the government's proposal, while Inpex is said to be interested in continuing their partnership with the government in the block, according to Energy and Mineral Resources Minister Sudirman Said.

"Legal issues that are related to the draft of the new contract, including its terms and conditions with other parties, must be prepared as soon as possible."

Sudirman also said that the central government had decided to give no less than 10 per cent of participating shares to the regional administrations, despite requests from East Kalimantan Governor Awang Faroek and Kutai Kartanegara Regent Rita Widyasari who earlier demanded that their administrations be jointly given a 19 per cent stake in the block.

"There are experiences in various energy concession cases - both in the oil-and-gas and mining sectors - where the regional administration obtained a certain percentage, but the impact [to the locals] was very insignificant, even almost nothing," the minister concluded on Friday.

Nationalism is high on the agenda in the Mahakam takeover, but Pertamina is in the spotlight here as concerns were raised over the firm's capacity to manage the block, which will need around US$2.5 billion (S$3.4 billion) in expenditures annually to keep it running.

A mature block with high degree of complexity, Total has needed to drill more than 100 wells per year and around 10,000 well interventions to maintain production, not to mention the daily management needed to keep its nine drilling rigs in operation. Pertamina, meanwhile, drills fewer than 50 wells annually.

"Pertamina has identified the things that we need to do and we are certain that we have enough experts to work there," the company's president director Dwi Soetjipto said after his meeting with Jokowi.

"There should be no problem in terms of human resources, information technology, databases, etc. We are certain that we could do our best," he reassured reporters.