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."