West Natuna gas contractors ask for contract extension

JAKARTA (JP): Oil and gas contractors grouped in the West Natuna consortium have asked the government to extend their production sharing contracts to secure enough earnings from their gas sales to Singapore.

The contractors, including Britain's Premier Oil, Conoco of the United States and Gulf Resources of Canada, have threatened to withdraw from the gas sales agreement which was signed by state oil and gas Pertamina and the potential gas buyer Sembawang Gas (SembGas) of Singapore unless the government extends their contracts, a source said on Monday.

Pertamina signed a preliminary gas sales agreement in July last year to supply SembGas with natural gas extracted from the gas fields worked by the three contractors west of Natuna Island in the South China Sea for 22 years from 2001 to 2023.

However, according to the source, Gulf's contract on the Kakap block will expire in 2005, while Premier's contract on the A block and Conoco's contract on the B block will end in 2009 and 2018.

Pertamina is scheduled to sign the final gas sales agreement later this month.

Under production sharing contracts (PSCs), the government has the right to extend contracts after 30 years or transfer the development of gas and oil fields to Pertamina.

The contractors have reportedly long urged Minister of Mines and Energy Kuntoro Mangkusubroto to extend their contracts to cover the whole period of gas sales to Singapore so that they are able to obtain enough return on their investments.

But, the minister has not yet given the nod to the request.

Director General of Oil and Gas at the Ministry Soepraptono Soelaiman has reportedly told the contractors that their contracts would not be extended.

"The contractors won't be able to obtain enough return on their investment if their contracts are not extended," the source said.

He said the three contractors will invest $1.5 billion to develop the gas plants and transportation facilities including a $ 400 million submarine pipeline to carry the gas from West Natuna to Jurong Island off Singapore.

This will become the first gas exports through pipelines from Indonesia, which is currently the world's largest liquefied natural gas (LNG) exporter with markets in South Korea, Japan and Taiwan.

Under the contract, SembGas will import 325 million cubic feet of gas per day (MMSCFD) to feed its power plant and petrochemical plants.

SembGas is a consortium led by Sembawang Engineering and Construction and includes Singapore's Tuas Power, Tractebel SA of Belgium and Singapore's Economic Development Board Investments Pte Ltd.

The gas sales will reportedly generate a total revenue of $7.5 billion for 22 years, $2.4 billion of which -- or $180 million per year -- will go to the government in taxes and profit sharing.

According to the source, SembGas is backing up Premier, Conoco and Gulf and will withdraw from the gas sales agreement if the government does not extend their contracts. SembGas reportedly doubts Pertamina's ability to supply it with gas without the help of the three contractors.

Analysts say the situation will give the government, which is currently in dire need of foreign exchange earnings, no choice but to extend the contracts.

Kuntoro once said that he will adopt a general policy of not extending any expiring contracts but, instead, transfer to national companies the development of the oil and gas fields on which contracts have expired.

He also once said," I am the one who can easily be forced to accept a fait accompli." (jsk)