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.