BP may get extension of its Kangean gas contract

A'an Suryana, The Jakarta Post, Jakarta

Despite a well-publicized gas pipe leak, Anglo-American energy giant BP Plc is likely to get an extension from the government for its Kangean gas contract in East Java.

The Oil and Gas Implementing Body (BP Migas), which holds the authority in overseeing the implementation of oil and gas production-sharing contracts in the country, has apparently sent to the Ministry of Energy and Mineral Resources its endorsement of the extension.

BP Migas chief Rachmat Sudibyo said on Thursday that his institution had given its approval on the grounds that the Kangean Block still had potential for further development and BP Plc was capable of doing just that.

The production-sharing contract with BP Plc for the Kangean Block will expire on Nov. 13, 2010.

"Our recent feasibility study shows that the Kangean Block has approximately one trillion cubic feet of gas reserves," Rachmat told reporters after a hearing with the House of Representatives (DPR).

Besides the reserves, other considerations that BP Migas had taken in endorsing the gas contract extension included investment, future profits and BP Plc's technological capability.

BP Migas endorsed the contract extension just a month after the gas pipe leak in BP Plc's Pagerungan field, which is located in Kangean.

The gas leak has forced BP Plc to shut down five other gas fields in the Pagerungan contract area. This shutdown has resulted in the reduction of gas supply to East Java to 100 million cubic feet per day (MMCFD) from 180 MMCFD.

As a result, the declining amount has put hundreds of businesses in East Java in disarray.

The controversial gas leak prompted criticism from several parties, including from BP Plc's competitor state oil and gas company Pertamina, which condemned BP Plc and called their pipe maintenance "negligent".

However, despite the incident, Rachmat said that BP Plc should be given a chance to produce and manage the gas fields in the Kangean Block.

"The gas leak was purely accidental," said Rachmat, adding that BP Plc was professional and technologically capable of finding new gas reserves, produce gas and manage the gas fields in Kangean.

As of the end of 2002, BP Plc had produced 11.74 million barrels of oil and 947 billion cubic feet of gas.

It has been estimated that the gas production will continuously diminish to 100 MMCFD in 2005 and 20 MMCFD in 2010, from current production level at 180 MMCFD, due to diminishing gas reserves in the old fields.

With the gas contract extension, BP Plc could explore new gas reserves in Terang Sirasun and Batur, which lie within the Kangean Block, so that BP Plc could increase gas production by 60 more MMCFD in 2006 and 300 MMCFD in 2006.

The production increase is needed to prevent future gas shortages in East Java, said Rachmat.