BP Migas demands speedy development in Natuna block

BP Migas demands speedy development in Natuna block

The Jakarta Post, Jakarta

The country's oil and gas sector's regulator will not support the
extension of U.S. energy giant ExxonMobil's contract in the gas-
rich Natuna D-Alpha block in 2007 if the contractor fails to
commence production from the block.

Oil and Gas Upstream Regulatory Agency (BP Migas) chairman
Kardaya Warnika said on Wednesday that Exxon had to show definite
progress sooner rather than later to develop the block and start
production, which had been stalled for the past decade with the
company still looking for buyers.

"It's difficult for us to be given promise after promise,"
said Kardaya after a hearing with the House of Representatives.

"If the block gets no market in two years and does not go into
production, why extend the contract?" he added.

Exxon has said that it was trying to secure buyers for the gas
block, which will be more expensive to develop as the gas
contains 70 percent carbon dioxide.

The company signed a memorandum of understanding (MOU) in 2002
with Malaysia's Petronas and is in talks with Thailand's PTT Pcl
to supply gas from Natuna D-Alpha.

"An MOU is not legally binding. What we need is gas sales
agreements," said Kardaya.

Exxon has a 76 percent share in Natuna D-Alpha, the largest
untapped-gas block in Asia with 46 trillion cubic feet of
recoverable reserves, and acts as the operator. Pertamina owns
the remaining 24 percent.

Exxon's contract should have expired in January, but the
government amended the agreement and gave a two-year extension.

Meanwhile, to prevent contractors from stalling the
exploration and development of oil and gas blocks anywhere in the
country, BP Migas is proposing a guarantee before signing
contracts.

If contractors back out of their plans for blocks, the
government can cash in the performance bonds, said Kardaya.

"It's necessary so that they don't act as they please," he
said.

If agreed to by the Ministry of Energy and Mineral Resources,
the amount of the guarantee may depend on the commitment already
pledged by the contractors, Kardaya said further.

Experience shows that contractors stall block development for
various reasons.

ConocoPhillips, the operator of Block A in Aceh, for example,
did not start production in the block as it wanted a bigger gas
output split than the 48 percent offered by the government.

Many companies have also been reported to not have real
intentions of developing oil and gas blocks, but rather to work
as brokers. In the previous block tender, the government set a
minimum signing bonus of US$500,000 to minimize such practices.

Indonesia is in dire need of new discoveries as the need for
the fossil fuel is steadily rising while crude and condensate
output is on the decline.