Pertamina, Riau sign agreement to operate CPP oil block

Moch. N. Kurniawan, The Jakarta Post, Jakarta

State oil and gas company Pertamina and the Riau provincial administration signed an agreement on Thursday to jointly operate the Coastal Plains Pekanbaru (CPP) oil block, ending years of dispute over rights to develop the block.

The agreement was signed by Pertamina's president Baihaki Hakim and Riau governor Saleh Djasit and witnessed by Minister of Energy and Mineral Resources Purnomo Yusgiantoro.

Under the agreement, Pertamina and the Riau province-owned firm PT Bumi Siak Pusako will form a joint venture to take over the operations of the CPP block from American firm PT Caltex Pacific Indonesia, whose contract ends in August this year.

Both parties will have equal shares in the joint venture, which will operate in accordance with a production sharing contract system.

Caltex's contract expired in August last year, but the company requested the government extend it for another year following the protracted quarrel between Pertamina and Riau over the joint venture's share composition.

According to Pertamina's data, under the existing contract, Caltex delivers 72.73 percent of the CPP total oil output to the government through Pertamina, while Caltex keeps the remainder.

The CPP block produces around 50,000 barrels of oil per day.

It remains unclear if the government will apply a similar production sharing scheme in the future production sharing contract to be awarded to the joint venture.

Under Law No. 25/1999 on Regional Fiscal Balance, Riau will also receive 15 percent of the total oil revenue received by the central government in the province.

Baihaki welcomed the agreement, saying the joint venture would seek to maintain current production levels at the block.

Thee new operator should invest about US$50 million in the first year, he said.

Meanwhile, Saleh said the agreement was expected to boost Riau people's capability in managing oil upstream business.

The province also planned to take over the operation of the Mountain Front Kuantan oil block from Caltex when its contract expired in 2005, he added.

Caltex operates another two blocks in Riau province, namely the Rokan and the Siak blocks.

Riau will become the first province in the country to enter the oil upstream business, which has been long dominated by foreign corporations, Pertamina and some privately-owned national companies.