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)