Caltex seeks House' support for oil contract extension

Caltex seeks House' support for oil contract extension

JAKARTA (JP): PT Caltex Pacific Indonesia (CPI), the country's
largest private oil firm, sought support from the House of
Representatives on Tuesday for its bid to extend its production
sharing contract on the Coastal Plain Pakanbaru (CPP) oil block
in Riau.

Company president Baiyaki Hakim promised that CPI would give
the government maximum earnings from the operation of the block
if it was allowed to continue developing it after its contract
expires in 2001.

"CPI's proposal to continue developing the CPP block is, we
think, the best alternative for the government to optimize its
revenues without any risks," Baiyaki said in a hearing with House
Commission V for mines and energy, industry and trade.

CPI was invited by the commission to make a presentation of
its plan to continue developing the block.

CPI has tried for years to extend its contract, but former
president Soeharto decided in August last year to transfer the
development of the block to state oil and gas company Pertamina.
The House supported Soeharto's move.

The company revived its effort last July after Minister of
Mines and Energy Kuntoro Mangkusubroto hinted that the government
was mulling the possibility of revoking Soeharto's decision given
the current financial problems faced by Pertamina and the fact
that the development of the block requires vast sums.

Pertamina president Soegianto has called on Kuntoro to honor
Soeharto's decision, saying "money is a small thing for the
company".

Kuntoro has laid out four alternatives for the development of
the block for when CPI's contract expires in 2001: CPI would
develop the block; or Pertamina; both companies would jointly
develop it; or the block would be offered in an open tender.

The CPP block currently produces 70,000 barrels per day (bpd)
and CPI believes there are 423 million barrels still recoverable
from the field for between 15 and 20 years through the
application of secondary and tertiary enhanced oil recovery (EOR)
technologies.

CPI currently produces 765,000 bpd in its seven contract areas
covering 115,136 square kilometers in Riau and North Sumatra.

"Production at the CPP block will drastically drop unless EOR
technology is applied," Baiyaki said, noting that CPI mastered
the technology and its parent companies -- United States giant
energy companies Chevron and Texaco -- had prepared a special EOR
technology using lignin injection for the CPP block.

Baiyaki said the application of EOR technology with lignin
injection technology across the world would normally increase
production costs to US$20 per barrel, but Chevron and Texaco had
managed to reduce production costs to $8 per barrel.

CPI, however, failed to gain unanimous support from members of
Commission V.

Community

Several legislators, including Djusril Djusan and Husni
Thamrin of the Golkar ruling party, said the government should
transfer the block to Pertamina after 2001 in line with the
previous government's decision.

"We should give Pertamina the chance to develop the block, not
only because Pertamina is able to do so, but also because it
would keep all the revenue in the country," Husni said.

Djusril said he was disappointed with CPI's lack of attention
to the welfare of the community living in the contract areas,
pointing to the fact that the Sakai people who live in its
contract areas remain in abject poverty despite CPI's 45-year
operation.

"We got information during our tour to the area that for 45
years CPI has only employed one Sakai man. And the man only
served as a security guard," Djusril said.

Baiyaki admitted that the company had yet to form a blueprint
of its community development program but promised it would pay
greater attention to such concerns in the future.

He said CPI had channeled about $4 million annually over the
past four years to a community development program and $4 million
and $6 million to environmental protection programs.

But Baiyaki acknowledged that the money spent on environmental
protection and community development programs were included in
the company's operating costs which totaled $350 million per
year. As such, most of it would be reimbursed by the government.

Under the production sharing contract (PSC), the government
takes 88 percent of CPI's oil product but has to cover 88 percent
of its operating costs.

"There is no obligation for oil and gas contractors to conduct
community development under PSC," Baiyaki said.

But, he said, its parent companies Chevron and Texaco formed
the Texaco and Chevron Foundation in 1993 to channel about
$500,000 per year to support community development programs in
CPI's contract areas. (jsk)