Investors want higher gas output split

Investors want higher gas output split

P.C. Naommy, The Jakarta Post, Jakarta

Oil and gas implementing body BP Migas has rejected a request
from ExxonMobil Indonesia Inc. and ConocoPhilips for a higher
production split in the Blok A gas field in Lhokseumawe, Aceh.

BP Migas chairman Rachmat Soedibyo said on Wednesday the two
production sharing contractors had requested the production split
be revised to 50:50 from the current 65:35 because of higher than
expected production costs.

Speaking at a hearing with House of Representatives Commission
VIII, Rachmat said the high content of corrosive gases such as
carbon dioxide and sulfur in the gas field could force the
companies to use stainless steel or chrome equipment, which would
raise production costs.

"But we still have to reevaluate the urgency of using such
high-cost equipment for the gas field," said Rachmat, pointing
out that the Blok A gas field would produce gas for only a
relatively short period due to its limited reserves.

He said his office had rejected the companies' proposal and
had asked both ExxonMobil and Conoco to come up with a new
proposal and cost calculation within a month so they could
immediately begin gas exploration activities.

"After two to three years of exploration, the Blok A gas field
is expected to start production in 2007," Rachmat said.

Lawmakers previously called on ExxonMobil and Conoco to
quickly begin exploration in the gas field in anticipation of
rising domestic gas demand.

Elsewhere, Rachmat said the country currently had some 160
trillion cubic feet of gas reserves, including in critical
regions such as deep seas and remote land areas.

He also said the government should provide incentive for
investors to develop gas reserves in the critical regions.

He said the incentives could be in the form of more favorable
production splits or cost recovery. "It's been more than 10 years
since the last incentive was given by the government in 1992."

Minister of Mineral Resources and Energy Purnomo Yusgiantoro
asked President Megawati Soekarnoputri during a recent Cabinet
meeting to revise the current production split between the
government and oil and gas investors, since the government had
dropped its previous "lex-specialist" policy.

The lex-specialist policy eased investment in gas and oil
through the provision of duty-free facilities for imported
materials used in gas and oil production.

In his proposal, Purnomo offered alternatives for the oil and
gas production splits. He suggested the production split for oil
be changed to 80:20 or 75:25 from the current 85:15, and the
split for gas 60:40 or 55:45 from the current 70:30.

According to Purnomo, the President has yet to respond to the
proposal.

The government has previously provided higher production split
for investors exploring new oil and gas fields. The incentive
was aimed at luring new investment in the sector.