Medco bids $100m for Block A

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.