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Indonesia Ministry of Energy and Mineral Resources Extend The management contract to ConocoPhillips

Written By pipeline-engineer.com on Tuesday, July 23, 2019 | 8:12:00 AM

The management contract extension has been determined by the Indonesia Ministry of Energy and Mineral Resources to ConocoPhillips as the existing operator on July 22, 2019 at the ESDM Ministry office, Jl. M.H Thamrin, Jakarta. 

The initial Corridor Block contract was signed on December 21, 1983 with three cooperation contract contractors (KKKS), namely ConocoPhillips (54%), Talisman (36%) and Pertamina (10%). The oil and gas block contract will expire on December 19, 2023. With the extension of the contract, the Ministry of Energy and Mineral Resources stipulates that the composition of share ownership will change to ConocoPhilips 46%, Pertamina 30% and Repsol 24%. 

The Corridor Block is the third largest gas block in Indonesia after the Tangguh and Mahakam Blocks. As of the end of June 2019, the realization of gas lifting from the Corridor Block was recorded at 827 million cubic feet per day (million standard cubic feet per day / mmscfd). 

In a press conference in Jakarta on Monday (7/22/2019) the Minister of Energy and Mineral Resources stated that the extension of the Corridor Block management for 20 years until 2043 was based on, among other things, a signature bonus (US $ 250 million and a definite work commitment (US $ 250 million). 

Corridor is said to be using a gross split scheme.The profit sharing contract will implement a gross split scheme in which the KKKS receives a 48.5% share for oil and 53.5% for gas.

(See another article : "Pertamina Was Alarmed Rokan Block Production Continues to Decline Like the Mahakam Block")

The decision of the Ministry of Energy and Mineral Resources above is based on Minister of Energy and Mineral Resources Regulation No.23/208 which is constitutional. Previously, ESDM Minister Sudirman Said had issued Minister of Energy and Mineral Resources Regulation No.15 / 2015 which prioritized the management of contracted oil and gas blocks to Pertamina. However, after Ignasius Jonan became Minister of ESDM, Minister of Energy and Mineral Resources Regulation No. 15/2015 was amended by Permen No.23 / 2018. This Regulation No.23 / 2018 is deliberately prepared to provide opportunities for foreigners to continue to dominate the control of national oil and gas management even though it has been managing for decades. 

Based on the Constitutional Court Decision No.36 / PUU-X / 2012, the oil and gas working area (WK) should only be managed by BUMN as a form of state control. This is in accordance with the mandate of Article 33 of the UDD 1945 in which the state through the Government and Parliament, has the power to make policies, manage, regulate, manage and supervise the state's natural resources. Particularly for management, government control is carried out by the government through BUMN. If the government complies with the constitution, then there is no other alternative except to hand over the management of oil and gas WK whose KKS ends to BUMN. 

Minister of Energy and Mineral Resources Regulation No.23 also contradicts the Energy Law No. 30/2007. Article 2 of the Energy Law states that energy is managed based on the principles of benefit, fairness, sustainability, community welfare, preservation of environmental functions, national security and integration by prioritizing national capabilities. Article 4 of the Energy Law states that in order to support sustainable national development and improve national energy security, fossil energy, geothermal, large-scale hydro resources and nuclear energy resources are controlled by the state and utilized for the greatest prosperity of the people. 

Minister of Energy and Mineral Resources Regulation No.23 / 2018 keeps the mystery of the possibility of corruption and rent seeking through direct appointment of existing KKS contractors to continue the management of an oil and gas WK. SKK Migas Head Dwi Soetjipto said oil and gas production in the Corridor Block would be stable if additional reserves were found. At present, proven gas reserves in this block are recorded at 4 trillion cubic feet (TCF). "Maybe until 2043, there were only a few TCFs. If it is calculated until 2026, there are probably 2 TCFs, "Dwi said.

If it is assumed that the remaining Corridor Block reserves are around 3 TCF and the average gas price is US $ 8-10 / mmbtu, the Corridor Block's gross income potential (before the exploitation fee is deducted) is around US 24 - 30 billion or around Rp 336 - 420 trillion , at an exchange rate of Rp. 14,000 per US $. The cost of acquiring proven reserves of an oil and gas block ranges from 10% to 15% of the reserve value. Therefore, the cost of acquiring 100% of the Corridor Block reserves is (10% - 15%) x US (24-30) billion = US $ 2.4 billion - US $ 4.5 billion!