Govt agrees to extend Kangean block contract

The Jakarta Post, Jakarta

The government has agreed to extend the gas contract in the Kangean block, East Java, operated by Anglo-American energy company BP Plc in order to help overcome the gas shortage in the province.

Iin Arifin Takhyan, Director General of Oil and Gas at the Ministry of Energy and Mineral Resources said the extension of the production-sharing contract would be made when the government regulation on oil and gas upstream business had been issued.

"In principal, we agree (to extent the contract) because gas shortages in East Java can only be dealt with by extending the natural gas contract in Terang Sirasun," Iin told reporters after a hearing with the House of Representatives on Wednesday.

The contract with BP Plc at Kangean block where Terang Sirasun field will expire in 2010.

"The regulation will provide a legal basis for the extension of the existing contract. It will allow investors to extend their contracts 10 years prior to their expiry," Iin explained. In the previous regulation, investors could only extend their contract two years before expiry.

The draft of the regulation is still at the State Secretariat, and has yet to be signed by President Megawati Soekarnoputri.

Iin said the extension of the Kangean block contract had been proposed a year ago but there had been suspicions of collusion as the extension was proposed years before its expiry period.

The extension of the contract would allow BP Plc. to explore new natural gas reserves in Terang Sirasun to bring in a greater gas supply for East Java. BP supplies natural gas for the province along with other producers.

Based on data from the Oil and Gas Upstream Regulatory Body (BP Migas), natural gas demand in East Java for power plants, gas distribution company PT Perusahaan Gas Negara (PGN) and petrochemical companies reached 424 million cubic feet per day (MMSCFD) in 2002. It is projected to increase to 573 MMSCFD in 2007.

However, the ability of natural gas fields around the province have been steadily declining from 390 MMSCFD in 2002 to 290 MMSCFD.

It is projected that the exploration of new gas reserves in Terang Sirasun will bring an additional natural gas supply of 300 MMSCFD.

East Java gets natural gas from BP's Lapindo Brantas (80 - 100 MMSCFD), Pagerungan fields (150-175 MMSCFD), Ujung Pangkah operated by Amerada Hess (100 MMSCFD), Oyong (40 MMSCFD) and Maleo (100 MMSCFD) and Kodeco (100 MMSCDF).

Ujung Pangkah is scheduled to produce natural gas in 2005 and Santos in 2006.