Old block Rokan needs fresh investment. After operating for more than 50 years, Indonesia’s most lucrative oil and gas block, Rokan, will need a fresh investment, with the terms having been agreed upon for state energy holding company Pertamina to take over the role of operator from United States energy giant Chevron.
Pertamina’s win over Chevron last year was unexpected, prompting some critics to say that it was an example of how Indonesia’s energy sector is run under a nationalistic agenda, particularly ahead of the presidential election in April.
As the new operator, Pertamina is expected to show that it can rejuvenate the block, the production of which is projected to continue declining in the years to come should there be no intervention whatsoever.
“Naturally, the reserves [of Rokan Block] will continue depleting. In the past, its oil production could reach 1.2 million barrels of oil per day [bopd], but now it is down to only around 200,000 bopd,” said Djoko Siswanto, director general of oil and gas at the Energy and Mineral Resources Ministry.
Ready-to-sell oil production, or lifting, from Rokan this year is estimated to reach 190,000 bopd, 9.09 percent lower than the production in 2018, data from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) show.
Last year, Riau’s Rokan Block was the most productive block, producing 209,478 bopd in oil lifting. However, East Java’s Cepu Block, which is managed by US energy firm ExxonMobil, recently exceeded Rokan with 210,000 bopd in oil lifting.
Global energy think tank Wood Mackenzie gave an even lower forecast for Rokan’s oil lifting this year, estimating 180,000 bopd.
Wood Mackenzie research analyst Johan Utama told The Jakarta Post recently that Pertamina would face challenges in maintaining production, let alone increasing it.
The research firm estimated that Rokan Block, which will continue to be managed by Chevron until August 2021, will need total capital and operational expenditures amounting to US$1.6 billion this year.
“Considering the maturity of the Rokan fields, even maintaining the production at a flat level would be very challenging without major new development projects and we do not expect such projects to come before the transition is complete,” Johan wrote in an e-mail.
The government has frequently stated in response to production concerns that Pertamina will provide an investment two years before the official handover in 2021.
SKKMigas chairman Dwi Soetjipto acknowledged that Pertamina might not act quickly in investing big in Rokan, as he learned from last year’s experience that the company “did not invest much” in increasing or maintaining production at the gas-rich Mahakam Block in East Kalimantan.
He said it was crucial for Pertamina to speed up its investment in Rokan this year to avoid the same situation from happening again.
“Hence, we held a meeting with Chevron and Pertamina to discuss the transition phase in Rokan, which must be done this year,” he said.
Last December, Pertamina paid the government a signature bonus of $784 million for winning the Rokan contract and 10 percent as a guarantee from the total $500 million of its five-year working commitment, which includes exploration activities.
Once Pertamina launches its operation in Rokan, the block’s oil contribution will increase from 36 percent to 60 percent of the company’s nationwide production.
Pertamina will need to establish a new upstream subsidiary for the future operation of Rokan.
Djoko said Pertamina was committed to conducting several well drillings with Chevron and SKKMigas in Rokan to avoid a decline in production.
“After signing the production sharing contract for Rokan, there will be drillings there […] Hopefully, it [production] can increase, or at least stay steady,” he said.
Energy and Mineral Resources Minister Ignasius Jonan said the production sharing contract for Rokan would be signed no later than January. Old block Rokan needs fresh investment (Stefanno Reinard Sulaiman, The Jakarta Post)