Indonesia’s energy and mineral resources ministry (ESDM) has prioritized ConocoPhillips’s bid of the three it received to manage production from the Corridor Block after the existing contract expires in 2023.

Djoko Siswanto, director general for oil and gas for ESDM, said ConocoPhillips’ management of the Corridor concession is a “priority” for the ministry though it received separate offers from Pertamina and Repsol.

“There are three,” he said last week, referring to the three companies’ offers. “We are processing them.”

ConocoPhillips is currently operator of the block, with a 54% participating interest. Repsol and Indonesian national upstream company Pertamina own 36% and 10%, respectively.

The existing production-sharing contract (PSC) for the block will expire on Dec. 19, 2023, when a 10-year extension period that began in 2013 ends.

The director general, however, said the ministry would select the operator that has the best program and definite commitment. “We will evaluate the offers and select the best one. We want this block [to] be managed with the best pattern, whether alone or jointly,” he added. 

The block, spread across an area of 2,258 sq km (872 sq miles) in South Sumatra, is the third largest gas producer in Indonesia after the Tangguh and Mahakam block. The seven gas fields of the concession currently produce about 840 million standard cubic feet per day (MMscf/d), accounting for about 17% of the country’s total gas production. Part of the produced hydrocarbons are exported to neighboring Singapore.

ESDM minister Ignasius Jonan has also hinted at the American major’s role in the management of the block. He discussed continuation of operatorship during talks with ConocoPhillips CEO Ryan Lance in Houston in May.

Afterward, the ministry said in a statement that the purpose of the meeting was to discuss the continuation of the ConocoPhillips operation in the Corridor Block in South Sumatra. “ConocoPhillips as the existing operator is committed to continue operating the Corridor Block with the current participating interest holders,” the statement added.

The minister, however, indicated the award of Corridor concession on the revised PSC norms, which are based on a gross split contract method instead of cost recovery. “If there is no interest in using gross split, I will give Corridor Block to the others,” Jonan said earlier.

Under the new gross-split PSC, the contractor covers all operation spending, while the government receives its profit sharing monthly. This is in contrast to the cost recovery PSC in which profit sharing was calculated after contractors deduct E&P costs.

The minister is against forcing global companies to exit producing oil and gas assets in the country in the name of economic nationalism.

The exit of Total-INPEX duo from Mahakam concession last year impacted gas production, which dropped to 832 MMscf/d in 2018 compared to 1,286 MMscf/d in 2017. The Rokan concession, which will be handed over to Pertamina by Chevron after the existing PSC expires in 2021, pumped 209,400 barrels per day (bbl/d) in 2018, down from 223,000 bbl/d in 2017.

Production from Mahakam and Rokan is expected to fall further this year.

Falling oil and gas production levels have raised questions over the government’s preference of Pertamina over global companies when allocating existing and new concessions.

Energy Watch Indonesia executive director Mamit Setiawan said the government should “rethink its option to give the blocks to Pertamina or backtrack from the current policy to prioritize Pertamina in taking set-to-expire blocks.”

He says the provision of equal opportunities to local and global companies is crucial to check falling oil and gas production levels and to promote investment in developing new assets in the country. Indonesia was estimated in 2016 to have proven oil reserves of 3.7 billion barrels and proven gas reserves of 102 trillion cubic feet.

Despite a growing economy with increasing energy demand, the oil and gas sector in Indonesia has been shrinking for the last few years. Declining oil production and increased consumption have made the country a net oil importer since 2004 with imports reaching more than 380,000 bbl/d in August 2018.

Consultancy firm PwC said in its latest report that the investments in the oil and gas industry in Indonesia amounted to around US$10.3 billion in 2017, the lowest in a decade.

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