The government said it would hand over the operation of the country`s largest oil block to state-owned energy company PT Pertamina.
Pertamina will be fully in control of the block, but the regional administration will have a 10 percent participating interest.
The decision indicates the confidence of the government in the ability of Pertamina in developing the block which still holds a reserve of around 1.5 billion barrels of oil equivalent.
Pertamina deserves to be named a victor over other bidders for the right to operate the block. Pertamina`s bid for the block was found more promising by the government than one proposed by Chevron, which was said to have offered an investment commitment of up to US$88 billion (around Rp1,277 trillion) if its contract was renewed and extended until 2041.
"The offer by Chevron was much less attractive than one proposed by Pertamina," Vice Minister for Energy and Mineral Resources(ESDM) Arcandra Tahar said.
Pertamina promised sustainability of oil production from the Rokan Block with working commitment of Rp7.2 trillion , signature bonus of US$784 million (Rp11.3 trillion)
The signature bonus for the government is to be paid before the signing of the contract to show the seriousness of the contractors in the operation of oil and gas in the country.
The state-owned energy company also convinced the government of potential state income from the oil block estimated to reach US$57 billion (around Rp825 trillion) in 20 years under its operation.
The government is convinced that its decision to award the contract to Pertamina for the operation and development of the oil block over a concession area of 6,264 square kilometers is purely based on business and economic consideration.
The decision will end decades of domination of oil mining industry by Chevron in the country as the operator of the country`s largest oil block. The California-based U.S. company has operated in Sumatra for more than 90 years.
Two largest fields in the Rokan Block , Minas and Duri, came on stream in the 1950s. Since then the Rokan Block has become the country`s backbone in oil production. Its oil production peaked at 1 million barrels per day in May 1973.
Many other old wells have been depleted or almost depleted and abandoned , but the Rokan Block remains the primadonna in the country oil mining industry with oil lifting averaging 210,000 barrels per day or 26 percent of the country`s total oil lifting at present.
The relatively high production is also thanks to the Enhance Oil Recovery (EOR) technology used in its wells mainly with steam injections adopted in the Duri oil fields since 1985.
For Pertamina, the successful bidding for the operation of the Rokan Block , would result in a surge in its oil and gas production. Its contribution to the country`s oil production would be jacked up from 23 percent to around 60 percent after the take over in 2021.
Not only that, as according to acting Chief Executive of Pertamina Nicke Widyawati, with Rokan Block under its control, the company will save a lot of foreign exchange in import of oil especially to feed its oil refineries. It would save spending up to around US$4 billion for oil imports a year, Nicke estimated.
Pertamina plans integration of the operation of the Rokan Block with the management of its oil refineries such as Balongan refinery in Indramayu, West Java, Dumai refinery in Riau, Plaju refinery in South Sumatra and Balikpapan refinery in East Kalimantan.
The steam injection technology would continue to be used in the Rokan Block to pump out oil from deep wells. Pertamina already used the EOR technology in a number of its oil wells such as in the oil fields of Rantau, Jirak and Tanjung under its subsidiary PT Pertamina EP.
Another subsidiary of PT Pertamina, Pertamina Hulu Energi, has also adopted the technology in the Siak oil field in Raiu.
In its Rokan Block bid , Pertamina gave outline of its working program based on data available in its hand to optimize the operation and development of oil wells in the block.
In the first phase of operation, Pertamina said it will also develop oil fields which have become the priority of development by Chevron. The purpose is to maintain the of oil production at a normal level, Upstream Director of Pertamina Syamsul Alam, said.
Pertamina is set to at least maintain the level of production, Syamsul said, adding the production is even expected to rise if the EOR program could run as expected.
After the contract for Pertamina is signed, the company and Chevron would prepare transitional working program to be carried out until the Chevron`s contract expires.
With Pertamina fully in control of the Rokan Block, in addition to increase in state income, the country`s energy security would be strengthened for a long time.
No less important is that it would give greater opportunity for the country to optimize the utilization of national human resource, and allow Pertamina to grow and break into the ranks of world class oil companies. (AS/a014)
Editing by Andi Abdussalam