Medco Get to Renew Lematang Block Contract

The government has finally allowed Medco Energy International to renew its contract in the Lematang Block. So, the Panigoro family firm will continue to manage this oil and gas block in South Sumatra when the current contract ends next year. 

The Energy Ministry’s Business Development Director for Upstream Oil and Gas Business Activity Djoko Siswanto said the Energy Minister Sudirman Said had sealed the agreement to renew the contract in the Lematang Block. The government offered the right to operate the block back to Medco after the state-owned oil and gas giant Pertamina refused to take over operation of the block. 

Under a 2015 regulation of the Energy Minister, the government has three options regarding expiring strategic oil and gas blocks that have major reserves and were previously owned by foreign companies: extending the contracts of existing contractors, transferring the management rights to Pertamina, or dividing the management rights between Pertamina and the existing contractors. 

Although Medco will continue operating the Lematang Block, Djoko was reluctant to reveal the duration of the new contract. But, under Government Regulation 35/2004 on upstream oil and gas business activity, an expiring contract can be renewed for a maximum of 20 years. (Read: Government to Renew Medco’s Contract in Lematang Block)

Djoko said there were several changes in the new contract. One change is in the government-contractor profit share. After the contract expires in 2017, the government’s portion could increase. “So, the state’s portion will be larger than it was before. If I’m not mistaken, the government will get an 85 percent share rather than the 80 percent it has now,” Djoko told Katadata, Wednesday (6/4). 

Energy Ministry data indicates that the Lematang Block has gas reserves of 123.38 bscf, and oil reserves of 36 mtsb. Medco as an operator initially had a 51.12 percent participating right in this block. Lundin Lematang owned 25.9 percent, and Lematang E&P possessed the remaining 23 percent. 

But, on 8 October 2015, Medco sealed a share sale and purchase agreement (SSPA) with Lundin Petroleum to acquire 100 percent of the stake of its subsidiary Lundin Indonesia Holding. Lundin Indonesia Holding also has 60 percent and 100 percent participating rights in the South Sokang and Cendrawasih VII exploration blocks. This transaction is awaiting the approval of the Indonesian government. 

Medco Lematang (Singa Field) financial statements show that in 2015 production declined from 2,215 mboe, compared to 3,203 mboe the previous year. (Read: Government Reminds Oil and Gas Block Contractors of Renewal Deadline)

Meanwhile, the President Director of Medco Energy Hilmi Panigoro refused to comment in detail on the renewal of the contract in the Lematang Block. Speaking to Katadata, Wednesday (6/4), he just confirmed the renewal, saying, “It’s been granted.”