West Natuna gas contractors ask for contract extension

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)