EMP to spend $400m on Kangean field

Leony Aurora, The Jakarta Post/Jakarta

After extending its contract in the Kangean oil and gas block in East Java, PT Energi Mega Persada (EMP) is ready to spend US$400 million to develop Terang Sirasun, a major gas field there, and expects production to start in 2007.

The Terang Sirasun field would produce between 300 million standard cubic feet per day (mmscfd) and 350 mmscfd of gas by the fourth quarter of 2007 at the latest, said Suluhudin Noor, senior vice president and general manager of EMP Kangean Ltd, a subsidiary of EMP.

"We have submitted the plan of development, which basically has been approved, pending the availability of funding," Noor said on Friday. He declined to mention the funding schemes for the project.

Noor said the tender for engineering planning was already underway, with four local and international companies bidding. "We will announce the winner at the end of this month," he said.

"Construction is expected to begin six months from now."

EMP acquired the rights to exploit Kangean from its former operator, Anglo-American energy giant BP Plc., for $160 million mid last year.

The government awarded a contract extension of 20 years to develop the block late last year, which gives EMP until year 2030 in total to extract as much oil and gas as possible.

With domestic fuel becoming increasingly expensive due to the government's decision to gradually reallocate subsidies and soaring global oil prices, industries are turning to gas as one of the most probable fuel alternative.

In total, the Kangean block has reserves estimated to be 2.6 trillion cubic feet of gas, including about 1.3 trillion cubic feet of certified (proven) reserves.

Of the three major gas fields discovered within the block, namely Pagerungan, Terang Sirasun and Batur, only the first is producing gas, at between 85 mmscfd and 90 mmscfd.

For 2004, the company has prepared some $200 million in capital expenditure. "One of our programs is to optimize Pagerungan," said Noor.

"By this year's fourth quarter, we expect to increase gas output to between 120 mmscfd and 140 mmscfd," he added.

Some 50 mmscfd of gas currently produced by Pagerungan goes to the province's fertilizer plant Petrokimia Gresik, while state- controlled gas distributor PT Perusahaan Gas Negara takes up to 24 mmscfd.

Noor said there was about 400 mmscfd of gas shortage in East Java, providing that all major industries switch to the more environmentally-friendly fuel.

EMP is controlled by the Bakrie Group, a business conglomerate run by the Bakrie family of the current Coordinating Minister for the Economy Aburizal Bakrie.