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PERFORMANCE TO BE CLOSELY WATCHED: Invetsment Commitments of Ten Oil and Gas Contractors US$ 146 Million

By Retno Ayuningtyas

JAKARTA - The government has again signed 10 oil and gas (migas) contracts with a total exploration commitment for the first three years amounting to US$ 146.41 million and a signature bonus of US$ 13.2 million. The signed contracts represent the results of second-phase regular auctions of 2011 and the first phase of direct offerings this year. Meanwhile, to ensure that the oil and gas contracts are executed correctly and on time, the government will create a system to supervise the performance Cooperation Contract Contractors (KKKS). One of the consequences of such a system is that only serious contractors can run the relevant oil and gas projects, otherwise the government will not hesitate to break the contracts.

Minister of Energy and Mineral Resources (ESDM), Jero Wacik, said that the government is committed to producing greater amounts of oil and gas for future needs. Therefore, the government is continuing to push the process of tenders, both regular and direct offering tenders, in order to attract investors in exploring oil and gas basins in Indonesia.

"In fact I would like to see the signing of at least 50 oil and gas contracts every year. The goal is to make increasingly greater oil and gas production into the future,” said Jero Wacik after the signing of ten oil and gas contracts, in Jakarta, Friday (20 July).

Ministry of Energy and Mineral Resources disclosed that the investment commitments made by the 10 KKKS are worth US$ 146.41 million, consisting of geological and geophysical studies worth US$ 14.33 million, two-dimensional (s D) seismic surveys along 2,150km valued at US$ 23.4 million, 2D seismic surveys (re-processing) worth US$ 50 thousand, 3D seismic surveys covering an area of 150km2 valued at US$ 6 million, and the drilling of seven wells valued at US$ 102.63 million.

On 25 May, 2012, the government also signed 13 oil and gas contracts with a total exploration investment commitment for the first three years amounting to US$ 233.41 [mi9llion], also with signature bonus worth US$ 15.7 million. One oil and gas block was offered through a regular tender and 12 oil and gas blocks through direct offering.

On the other hand, there are three blocks whose tender winners have been named, but whose contracts have yet to be signed due to the needs for fulfilling administrative requirements. Related to this, Jero Wacik has asked Directorate General of Oil and Gas to give ease of administration. The three blocks are Bireun Sigli Block, which has been won by PT Aceh Energy, Bengkulu I-Mentawai Block won by PT Total E & P Mentawai, and Telen Block won by PT Total E & P Telen.

Jero Wacik revealed that all the KKKS that have signed oil and gas contracts with the government are mandated to implement their commitments as promised by immediately conducting exploration. To ensure that, Executive Agency for Upstream Oil and Gas (BP Migas) has been conducting supervision thus far. However, to strengthen the oversight function of BP Migas, Ministry of Energy and Mineral Resources, through the Directorate General of Oil and Gas, is also preparing a performance monitoring system for those KKKS that have signed a contract.

"I have asked for strengthening of the supervision system. Oil and Gas Director General, Deputy Minister, and of course BP Migas, have to establish supervision system as soon as a work area is signed for. Every year, there should be developmental progression; in the event of delay, a reminder should be given. If this early reminder is ignored, a warning notice should be given, until the provision of ruling when the work area should be revoked,” he said.

KKKS Performance
In the same place, Director General of Oil and Gas of the Ministry of Energy and Mineral Resources, Evita Herawati Legowo, said that BP Migas has so far carried out supervision of KKKS performance in managing the work area. With the instruction of the Energy and Mineral Resources Minister, her office will intensify coordination with BP Migas to participate in the supervision. So far, Directorate General of Oil and Gas coordinates with BP Migas once every three months.

"We are not going to look into the detailed operations, but will simply check whether or not commitments for the first three years have been performed. In our observation, not all KKKS have indeed recorded good performance. Evidently, so far there have been several work areas whose contract or license has been revoked,” he said.

According to Evita, the revocation was done due to failure in registering progress after a maximum of six years of exploration activities. Before the revocation of a license or contract is made, BP Migas has certainly evaluated in advance all the hurdles confronting the KKKS during exploration. For example, if the delayed process of exploration is due to land overlapping, this is not the fault of the KKKS, even, if necessary, the government should instead grant contract extension for the concerned KKKS.

"Another problem is funding. Good funding capacity has been used as a tender requirement, along with technical and administrative capabilities. It means, determination of a winner has considered its financial capability. About funding, we have checked, but we do not know if there is a sudden crisis and the company’s financial condition collapses,” he said.

Head of Public Relations, Security, and Formality Division of BP Migas, Gde Pradnyana, admitted that some 20 percent of the problems in work area management are caused by a lack of funding. That means, certain oil and gas companies win a work area, but it is simply left neglected due to the lack of funding. Other management constraints include licensing, land, and public disorder, [which together] account for 52 percent, whereas 17 percent of the problems are attributable to procurement matters.

"To minimise the constraints of oil and gas management, we have established exploration area communication forum. This forum is to help new players in the oil and gas sector to process licensing problems and overcome obstacles in the field. We think that this kind of forum is reliable because 80 percent of the problems have been successfully resolved,” said Gde.

Today there are as many as 284 working areas for exploration and exploitation throughout Indonesia. Last year, there were nine contracts terminated for not fulfilling investment commitments. One of them was Orna International, which operated Rembang Block. This block has 400 million cubic feet of gas reserves and 52 million barrels of oil reserves. Meanwhile, during the first half of this year, three oil and gas contracts were proposed for termination.

 List of Ten Oil and Gas Blocks and KKKS that Have Signed Contract

Migas Block and KKKS Investment Commitment and Bonus
WK Kuningan by PT Ekuator Energi Kuningan US$ 9.95 milling and US$ 1 million
Bohorok Block by Bukit Energy Bohorok Pte Ltd - NZOG - Bohorok Pty Ltd - Surya Buana Lestarijaya Bohorok Inc US$ 2.85 million and US$ 1 million
Mahalo Block by Texcal Mahato EP Ltd - Bukit Energy Central Sumatra (Mahalo) Pte Ltd - Central Sumatra Energy Mahalo Ltd US$ 8.6 million and US$ 1 million
South Link Block by Indrillco South Link Ltd - Texcal South Link Ltd - Central Sumatra Energy South Link Ltd US$ 8.6 million and US$ 1 million
Bukit Batu Block by PT Geo Bukit Batu US$ 22.3 million and US$ 1.2 million
Palangkaraya Block by Petcon Borneo Ltd US$ 2.9 million and US$ 1 million

Babal Block by KE Babal Tanjung Ltd

US$ 4.2 million and US$ 1 million

East Sepinggan Block by Enl East Sepinggan Ltd

US$ 80.6 and US$ 3 million

Aru Block by Niko Resources (Aru) Ltd - StatOil Indonesia Aru AS

US$ 800 thousands and US$ 1 million

Udan Emas Block by KrisEnergy (Udan Emas) BV

US$ 5.6 million and US$ 1 million

Source: Ministry of Energy and Mineral Resources