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.