Exxon asks for buyers' guarantee before developing block in Aceh
Exxon asks for buyers' guarantee before developing block in Aceh
The Jakarta Post, Jakarta
As negotiations to develop the Block A gas field in Aceh
continue, ExxonMobil Oil Indonesia, which with ConocoPhilips hold
the concession rights to the field, has requested a payment
guarantee from buyers.
The guarantee would ensure that the natural gas reserved for
specific buyers would be paid for in full, Kardaya Warnika,
chairman of the Upstream Oil and Gas Executive Agency (BP Migas),
said on Tuesday.
"In other countries such guarantees may be (in the form of) an
SBLC," he said, using the acronym for a standby letter of credit.
A letter of credit is issued by a bank to guarantee that a
buyer can pay the seller. These letters of credit can be used for
unspecified transactions, simply to ensure a buyer will not
default.
The government is pushing ExxonMobil and ConocoPhilips, each
of which holds a 50 percent stake in the field, to speed up
exploration of the block in Lhokseumawe, where three gas fields
-- Alur Siwa, Alur Lambong and Julu Rayeu, with a combined
reserves of about 500 billion standard cubic feet (bscf) -- are
located.
Development of the fields has taken on new urgency as output
from the nearby Arun gas field, which is operated by ExxonMobil,
has declined, forcing fertilizer plants in the province, which
depend on gas from Arun, to slow down or halt production.
"We want to start developing (the block) this year," said
Kardaya.
The main stumbling block in the negotiations is the pricing
and production sharing contract (PSC) with the government.
Kardaya said the gas producers wanted a price of about US$3.20
per million metric British thermal unit (mmbtu), higher than
price paid by domestic users.
"If PIM agreed to such a price, (the negotiation) would be
almost over," said Kardaya, referring to Pupuk Iskandar Muda, a
major fertilizer producer in Aceh.
The government has allowed PIM and another fertilizer
producer, ASEAN Aceh Fertilizer, to export some of their
production, provided they can meet demand in the province, to
enable them to afford higher gas prices.
Minister of Industry Andung A Nitimihardja was quoted as
saying on Tuesday that PIM could only pay $3.20 per mmbtu.
Kardaya also said discussions on production sharing between
the government and the two concession holders had not been
concluded.
"After the price is fixed, then we will talk about the split,"
he asserted.
ConocoPhilips reportedly has asked for half of what is
produced in Block A, while the government is offering 49 percent.
A normal production sharing contract stipulates that the
government gets 70 percent of output. The split at Block A will
be different because it has relatively small gas reserves. The
gas also has a high sulfur content, making it more expensive to
exploit.