Riau Islands eyes share in Natuna's oil, gas fields

Fadli, The Jakarta Post, Batam

The local government of the Riau Islands province plans to ask for ownership in oil and gas fields being developed in its Natuna Sea area, amid ongoing contract negotiations for the D-Alpha block.

Besides the particular gas-rich block, the contract for which the Indonesian government had recently terminated with U.S. oil giant ExxonMobil, other fields currently being developed by foreign operators Conoco Oil, Premier Oil and Star Oil will also fall under the planned scheme.

The plan will be proposed to the central government for approval and is currently being discussed with the operators, Riau Islands Governor Ismeth Abdullah told The Jakarta Post last week.

"Several operators have met us to discuss the issue, including Exxon, which has principally agreed with our proposal if they are appointed again to develop the (D-Alpha) block," he said. "But we haven't agreed on how much the ownership will be."

The plan is important to increase the province's local revenue from the oil and gas sector, Ismeth further said, mentioning how the central government's revenue share for the region was not enough.

It will also serve as an exchange for the province having contributed in helping carry out related administrative work for the projects and ensuring their security, as well as a contribution to improve the welfare of the local community.

Revenue sharing from the oil and gas sector for the Riau Islands currently amounts to Rp 180 billion (US$19 million) per year, and another Rp 600 billion for the Natuna Islands regency, where most of the oil and gas development projects are located, he said.

The Natuna Islands is located in the South China Sea, some 1,000 kilometers northwest of Jakarta.

If the province owns a share in the projects, it will then not only receive revenue sharing funds, but also their profit dividends, Ismeth said, learning from the experience of Central Java's Bojonegoro regency, which managed to get a share in the Cepu block, with the dispute over its development with Exxon having been recently settled.

The Indonesian government and Exxon had been caught up in a similar row over the status of the D-Alpha block, which was discovered in 1973 and is estimated to contain 222 trillion cubic feet of gas, of which 46 trillion is commercially recoverable.

Exxon has a 76 percent interest in the gas field, which was discovered in 1973, while the remainder is owned by state oil company PT Pertamina.

The government terminated the contract it awarded to Exxon in 1984, arguing it had expired and was dissatisfied with Exxon as it had not developed it, but only submitted a commitment letter to extend the contract rather than a complete feasibility study.

Exxon had delayed drilling in the block due to the costly carbon-dioxide extraction process. It also claimed that based on a 1995 amendment to the contract, it had an option to extend the contract, which matured in 2005, on a total of two occasions for a period of two years each time.

The contract is now being renegotiated, with the government likely to prioritize Exxon in developing it again if it can offer better terms, Kardaya Warnika, chairman of the state oil and gas regulator BPMigas was quoted Saturday by Bloomberg.
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