Medco bids $100m for Block A
Leony Aurora, The Jakarta Post, Jakarta
PT Medco Energi Internasional, the country's largest locally controlled oil and gas firm, is ready to invest US$100 million to develop Block A in Aceh should it win the tenders to buy the concession from ConocoPhillips and ExxonMobil.
The investment will be used to develop the gas-rich block in Lhokseumawe, Nanggroe Aceh Darussalam, over two years, Medco president director Hilmi Panigoro told The Jakarta Post on Tuesday.
"It will be easy to find project financing to develop the block," said Hilmi.
He estimated that the area would be able to produce some 100 million standard cubic feet per day (mmscfd) at peak production.
Hilmi further said that the company had submitted candidate blocks to ConocoPhillips, which had invited bids for its interests in Block A based upon a block-swap mechanism.
"They are studying the blocks that we have offered," said Hilmi.
He did not name the blocks that had been offered.
ConocoPhillips owns a 50 percent participating interest in Block A and acts as the operator. The firm has reportedly stalled on the block's development as it holds out for a bigger share of the gas output than the 48 percent offered by the government.
If ConocoPhillips does not start construction by next year, the government will have the right to invite other investors to take over.
Hilmi said that the split was already better than the usual scheme, under which the government gets 70 percent of the gas produced while the contractor is left with the remaining 30 percent.
The Block A split was different as it had relatively small gas reserves and the gas contained a high level of carbon dioxide, which therefore made exploitation more expensive.
Hilmi said that Medco would also participate in the open tender held by Exxon, which has also invited bids in cash for the other 50 percent share of the block.
Aside from Medco, PT Energi Mega Persada, the country's second largest local oil company, has also expressed interest in developing Block A.
The development of the block is critical to ensuring the survival of fertilizer firms in Aceh. Output of the province's giant Arun gas field Arun, operated by Exxon, is on the decline, forcing fertilizer plants there to stop production.
The government expects to have natural gas flowing from Block A by 2008.
Several members of the Association of Southeast Asian Nations (ASEAN) decided last Saturday to liquidate the ailing PT ASEAN Aceh Fertilizer (AAF) in the province due to uncertainties over its supplies of gas -- a key raw material in fertilizer production.
PT Pupuk Iskandar Muda (PIM), another fertilizer producer, was forced to suspend production two weeks ago as supply from Exxon came to a halt.
Exxon stopped supplying gas after the government failed to guarantee the finding of a replacement cargo of liquefied natural gas (LNG), equivalent to 2.9 trillion British thermal units, to meet its commitments to its Asian buyers.
State oil and gas firm PT Pertamina, tasked with finding the LNG cargo, found it impossible due to the tight market in the face of the upcoming northern winter.
LNG shortages in Northeast Asia may worsen as several producers have said that they will cut production.