You are here

Articles - December 2014


  • 10 December 2014
    Total Indonesie’s Mahakam Block Revisited


    Total E&P Indonesie’s contract with the government is scheduled to expire in 2017, but no decisions have been made regarding the future of the highly productive Mahakam oil and gas block. (GA Photo/Defrizal)

    Shaky Ground. The French oil giant awaits its fate as the government mulls over its expiring contract

    By Yanto Soegiarto on 09:13 pm Nov 26, 2014

    Mahakam. As Total E&P Indonesie’s oil and gas contract with the government is set to cease in 2017, what’s on the horizon for the Mahakam block?

    Uncertainty looms over the future of the Mahakam block, with a failure of the previous government to make a decision on who will operate the field after Total E&P Indonesie ends its contract with the country in 2017.

    Mahakam is the archipelago’s most important producer of gas, with this year expecting to produce a daily average of 1.7 billion cubic feet of gas (bcfd).

    In the past it was also a significant contributor to national oil production, although output at the Handil field at the Mahakam River delta has dropped to a mere 16,000 barrels a day compared to its peak production of around 197,000 barrels a day in 1977.

    An accumulated total of at least 900 million barrels of oil has come from the Handil field over more than 39 years. Meanwhile, the search for more oil will not be easy as the water content in oil is now higher at up to percent, compared to 10 percent in the past. Gas reserves, on the other hand, remain extensive.

    Mahakam utilizes 410 wells for its output of oil and gas, grouped in 65 clusters with an average depth of 3,000 meters each. Each cluster is connected to a pipe network to channel oil and gas to the central production area (CPA) for processing and separation.

    The oil is then sent to a terminal in Senipah, while the gas is piped through to the liquefied natural gas (LNG) terminal in Bontang.

    On a visit to Total Indonesie’s CPA, a 15-minute boat ride from the mainland, site manager Sudjud Sudjarwadi outlined to GlobeAsia the importance of the Mahakam block to the nation.

    GlobeAsia was accompanied by site engineer Fakhir Razy on a tour of the main production facilities and its operations control room. Both Sudjud and Fakhir are experienced and capable Indonesians — like most of the people who make up the majority of Total Indonesie’s staff running the sophisticated and complex operation.

    This is also the first time the firm has been headed by an Indonesian; chief executive Hardy Pramono is a veteran oil engineer with more than 30 years in the business.

    Total has repeatedly asked for a contract extension over the past years, but all of its requests fell on deaf ears as former president Susilo Bambang Yudhoyono’s administration seemed unable to come to an agreement on how to proceed.

    This uncertainty has become a national issue. Total is waiting for an answer from the new government under President Joko Widodo, one that would allow the French oil giant to continue its operation of the Mahakam block for five years beyond the expiration of its contract in 2017, and give the next operator a transition period.

    Under the scheme, Total is proposing that a new joint operation with state oil company Pertamina operate the block throughout the transition period. During that time, transfer of know-how, expertise and experience, given the complexities at the site, could be passed on.

    Total will own 30 percent and Total’s partner, Japan’s Inpex, 30 percent; while Pertamina will receive the remainder.

    A GlobeAsia source has said the government wants Pertamina to take over but the state-owned oil company has rejected the transition proposal and prefers an immediate handover of the Mahakam block after Total’s contract expires.

    “But that’s not so easy for Pertamina,” the source pointed out. “Total still has the back office and the technology, which can’t be given away just like that. If something happens, where would the operator go? Elsewhere, at Petronas or PTT, such a transition scheme worked and they have become giants.”

    Total has warned that output from the field could decline by up to 72 percent if investments in development and maintenance are not made soon.

    “This is why certainty is important. We have to make huge investments and those need time to prepare,” Total communications chief Arividya Noviyanto told GlobeAsia in Balikpapan recently.

    But despite having to play the waiting game, the company remains committed.

    “Next year we will invest around $2.5 billion. We are going to drill more than 100 development wells and continue to complete the South Mahakam phase three project at the Jempang and Metulang fields, and Bekapai phase 2B,” Noviyanto said.

    “We sincerely hope that we will get word soon on the transition proposal and that the government sees it as a good option. Total Indonesie as a company has a reputation and is responsible. We don’t want to leave a bad impression. It’s all for the well being of Indonesia and Mahakam as a national asset.”

    Total and Inpex have invested over $1 billion a year in Mahakam projects over the past years. Meanwhile, in a more recent development, new Energy and Mineral Resources Minister Sudirman Said told Reuters that the government hopes to leverage a partnership between Total and Pertamina to expand the country’s resource base.

    “We will use this opportunity to expand Pertamina’s access to resources not just domestically but also overseas. We will invite Total Indonesie or whoever finishes this: ‘Let’s work together, but can you take Pertamina with you to where you operate?’ ”

    Sudirman added that he was targeting a decision on the matter within three months.

    On the Handil shore, at the Meindo Elang Indah yard, workers are putting together a $120 million offshore head-well platform which was subcontracted by Total in its bid to boost gas production from the Mahakam block.

    Total spokesman Kristanto Hartadi told GlobeAsia that the most recent project developed is South Mahakam 3. Construction of the offshore head-well platform is to be completed and operations will begin in the third quarter of 2015.

    “South Mahakam 3 could be the last project of the company in the Mahakam block. We are not stopping building projects. There are a number of PODs [plans of development] proposed and already approved by SKK Migas, but support from the government is needed to achieve the economic level,” he said.

    The wellhead platform is as tall as a six-storey building. It will be deployed and stand on a tripod 35 kilometers offshore named the Jempang-Metulang field.

    According to Meindo construction manager Yono Eko Prasetyo, the platform will be placed in 47 meters of water.

    “From zero until 100 percent completion, it is entirely the work of Indonesians. We work day and night until 10 p.m. to create this wellhead platform and it is our pride,” Yono said.

    Globe Asia