Pertamina to take over Indonesia's biggest gas block from Total

[JAKARTA] Indonesia's state energy company PT Pertamina will take over majority ownership and become the operator of Mahakam, the country's biggest gas-producing block, from current stakeholders Total SA and Inpex Corp.

Pertamina, along with a company owned by the government of East Kalimantan province where the field is located off Borneo island, will get a 70 per cent stake when the contract expires in 2017, said Energy and Mineral Resources Minister Sudirman Said in Jakarta on Friday. Total, the operator, and Inpex currently have 50 per cent each.

The move, under discussion for years, ends uncertainty over the contract for a block accounting for about 30 per cent of Indonesia's natural gas production. President Joko Widodo pledged during his election campaign last year to renegotiate contracts with foreign companies and keep more resources for domestic use, amid a rising tide of political nationalism.

"For Pertamina, this is a huge opportunity for business development," said Rini Soemarno, the minister for state-owned enterprises. As companies with global expertise, "Total and Inpex will be able to collaborate with Pertamina not only in the context of Mahakam block, but also other blocks," she said.

Total E&P Indonesie said in 2013 that it will stop developing new projects to maintain natural gas production at the Mahakam block because of uncertainty over the contract's extension. Gas output may be unchanged from last year at 1.65 billion cubic feet a day, Total E&P Indonesie said in January. Total and partner Inpex had proposed operating the block for a further five years with a reduced stake.

The new production sharing contract is expected to be signed by the end of this year, the energy minister said, without giving a valuation for the block.

Oil and gas production in Indonesia, which is seeking to rejoin Opec, has been dropping as fields age and the country struggles to attract foreign investment. Pertamina has focused on taking over Mahakam to lift its production and cut spending on overseas acquisitions this year.

BLOOMBERG