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.