Much rests on decision on future of CPP oil block

Much rests on decision on future of CPP oil block

By Johannes Simbolon

JAKARTA (JP): Intense anticipation surrounds the government's
scheduled decision this week on the future of PT Caltex Pacific
Indonesia's production sharing contract for the Coastal Plains
Pakanbaru (CPP) oil block in Riau.

Minister of Mines and Energy Kuntoro Mangkusubroto said early
last week a task force -- composed of officials from the
ministries of mines and energy, finance, national development
planning and the State Secretariat -- would recommend to him the
best alternative for development of the block after the
contract's expiration in 2001.

It has weighed four alternatives -- allow the country's
largest private oil producer to continue developing the oil
block; transfer it to state oil and gas company Pertamina; ask
both to cooperate in developing the block, or put it up for open
tender.

The spoils to be gained in potential revenue are enormous, and
both Caltex and Pertamina have vigorously argued their case
vigorously before the task force.

They have also participated in hearings with the House of
Representatives' Commission V -- overseeing mines and energy,
industry and trade, manpower, investment and cooperatives -- in
bids to gain its backing.

Although the commission appeared divided over the competing
interests when it met with Caltex's management on Sept. 15, the
majority of its members endorsed Pertamina in a hearing with
Kuntoro on Sept. 22. They said the government should put the
national interest first over foreigners.

Kuntoro explained his main concern was securing optimum
earnings from the block during the acute monetary crisis, when
the government direly needs revenue from the oil sector.

At issue, he asserted, was not who would develop the block,
but their ability to maintain production standards.

"I don't think I am not a nationalist if I am concerned with
securing income from the oil block for the nation," Kuntoro said.

He agreed to consult with the commission before making his
decision based on the task force's recommendation.

Consisting of 24 oil fields, the block currently produces
77,800 barrels per day (bpd), accounting for 9.7 percent of
Caltex's total production of 765,000 bpd.

Pertamina's own production will increase to more than 117,000
bpd in 2001 if it is allowed to develop the block and maintains
its current production rate.

Caltex, jointly owned by giant U.S. oil companies Chevron
Asiatic Limited and Texaco Overseas Petroleum, also operates
three other oil blocks in Riau: Rokan with an output of 638,750
bpd, Siak (2,450 bpd) and Mountain Front Kuantan (1,000 bpd).

Mountain Front Kuantan's contract expires in 2005, Siak in
2013 and Rokan in 2021.

Caltex has pushed for years to extend its contract on the CPP
block for a further 20 years, but then president Soeharto decided
last year to transfer development of the block to Pertamina.

Soeharto's successor B.J. Habibie elected to review the
decision given Pertamina's financial woes and the crisis.

EOR

Caltex president Baiyaki Hakim said during the commission
hearing that the CPP block, which still contains 423 million
barrels of oil, should be developed with tertiary enhanced oil
recovery (EOR) technology to maintain its current production
rate.

Without application of tertiary EOR technology, he said its
output would drop to slightly more than 50,000 bpd in 2001,
declining to 30,000 in 2006 and 10,000 bpd in 2015.

Oil companies produce oil by application of three kinds of
technology.

They first rely on the pressure inside oil wells to bring
crude oil to the surface. They can take between 15 percent and 20
percent of oil reserve with this primary technology.

They can increase the recovery factor to between 20 percent
and 35 percent by injecting water into the well to add pressure
in what is called secondary EOR technology.

A great portion of the oil reserve still remains inside the
well since due the crude oil is too viscous or trapped in
reservoir's rocks. Oil companies thus introduce the tertiary EOR
technology, in which they inject steam, microbes or chemical
surfactants, including lignin, to lower the viscosity of crude
oil or loosen the grip of reservoir rock to the crude oil.

With the tertiary EOR method, oil companies can increase the
oil recovery factor to between 35 percent and 50 percent.

Baiyaki said Caltex was experienced in EOR technology and it
would apply a tertiary EOR technology using lignin surfactants,
which was developed by its shareholders Chevron and Texaco in the
U.S, for 10 years.

The company, he added, would have no difficulty in making
lignin surfactants for the EOR technology because lignin is a
waste product from the pulp and paper industry prevalent in Riau
province.

Baiyaki said the use of lignin surfactants for ERO technology
in the U.S. would increase production costs to $20 per barrel,
but Chevron and Texaco would be able to reduce the cost to $8 per
barrel.

"Thus, the application of our technology still has commercial
value even though the oil price is as low as $12 per barrel,"
Baiyaki said.

Caltex will make a field trial of its lignin EOR technology in
its Minas field next year.

Pertamina

Pertamina's exploration and development director Priyambodo
Mulyosudirjo said his firm would also apply tertiary EOR
technology using lignin.

He said Pertamina was cooperating with the Gadjah Mada
University to make lignin surfactants from lignin disposed by the
palm oil industry, also a major presence in Riau.

Pertamina, however, had yet to calculate the oil production
cost for the technology.

"The application of EOR technology only has commercial value
if there is a good oil price," Priyambodo said, adding that his
firm would make a field trial of its lignin EOR technology in its
oil field in Rantau, North Sumatra.

Priyambodo dismissed doubts over the ability of Pertamina's
human resource to operate EOR technology, saying it had 22
engineers who had undergone training from Chevron and Texaco in
the U.S.

He argued that by allowing Pertamina to operate the field, the
government would also help promote oil research in local
universities.

He said application of the EOR technology needed an investment
of US$1.329 billion for 20 years, or $66 million per year.
Pertamina would find no difficulty in providing the fund, he
added, pointing to its annual $400 million exploration and
development expenditure.

From a technological point of view, Kuntoro said the
government considered that Caltex and Pertamina were on equal
footing.

"Both Caltex and Pertamina are equally experienced in primary
and secondary EOR technology. But both them are equally
unexperienced in the (lignin) tertiary EOR technology."