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Pertamina seeks 50-year PSC for East Natuna gas block

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Pertamina seeks 50-year PSC for East Natuna gas block

Highlights

Indonesian state-owned oil and gas company Pertamina is seeking a50-year production sharing contract from the government for the East Natunablock, the company's upstream director Muhammad Husen said Tuesday.

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Husen said Pertamina was seeking a longer-than-usual contract to allowit to make a profit from developing the block.

"We are asking for an investment guarantee from the government by givingus a 30-year production sharing contract and granting a 20-year extensionwhen the PSC is signed. We need it because the East Natuna block containshuge amounts of carbon dioxide and requires massive investment. We are askingthe government for special treatment," he said.

The East Natuna block contains an estimated 222 Tcf of gas, but with ahigh carbon dioxide content of around 70%. About 46 Tcf of gas is though tobe recoverable, but the separation of carbon dioxide is technicallychallenging and costly.

Normally the Indonesian government only grants 30-year PSCs. Thecontract may be extended for another 20 years subject to government approvalwhich is not automatic. The operator of block is only able to seek anextension 10 years before the contract expires.

Pertamina and its partners have estimated that the the cost ofdeveloping the East Natuna block until it reaches the production stage wouldprobably be $24 billion because the gas from the block would likely be soldin the form of pipeline gas rather than LNG, Husen said. Earlier industryestimates put the block's development costs at $30 billion-40 billion.

Apart from a longer PSC, Pertamina was also seeking additionalincentives from the government either in the form of a production sharingsplit and/or tax breaks. The company is also asking the government to expandthe block because 4 Bcf/d of gas needs to be extracted to produce a yield of1 Bcf/d of natural gas, Husen added.

Pertamina signed a heads of agreements in 2010 with ExxonMobil, Totaland Malaysia's Petronas on the development of East Natuna. However, Petronashas decided to pull out.

"We have no intention of seeking another partner to replace Petronas,"Husen said.

Pertamina originally aimed to sign a PSC on the East Natuna project withthe government last year, but this has been delayed by the negotiations onthe terms and conditions. Pertamina set a target of 2012 for starting todevelop the project, with the block coming onstream in 2022. Energy and minesminister Jero Wacik said Tuesday that the government would make anannouncement on East Natuna in the next three weeks but declined to elaboratefurther.

--Anita Nugraha, newsdesk@platts.com

--Edited by Jonathan Dart, jonathan_dart@platts.com