Total Willing to Pay Penalty for Returning South Sageri Block

Total E&P Indonesie has finally decided to return the South Sageri Block to the government because the firm believes the oil and gas block in the south basin of the Makassar Strait is no financially viable.

Total’s Vice President of Corporate Communication, HR, and Finance Arividya Noviyanto said that the company would rather return the block to the government than rack up losses. “The prospects are not great,” he said to the journalists at his office, Monday (25/4). SKK Migas has already processed the return of the block to the government which will be finalised by the Directorate General of Oil and Gas of the Energy Ministry.

Before returning the block to the government, the French oil and gas company had ceased exploration activities in the block last year. Total commenced its exploration activities in the block four years ago and had drilled three wells. The results, however, were not financially viable, especially amid low oil prices. (Read: Total Ceases Exploration Activities in South Sageri Block)

Novi said that there is a risk involved in Total returning the block to the government because it has not fulfilled all of its obligations although the company has drilled three wells. “There will be a penalty to pay. We will deal with that this year,” he said.

Total did not, in fact, manage the block alone. The company initially owned 35 percent of the management rights in the block as operator. In 2012, Total bought 10 percent management rights from Thailand’s PTTEP. Currently, PTTEP owns 20 percent management rights in the block, while the remaining 35 percent is owned by Talisman Energy from Australia.

The return of South Sageri Block adds to the long list of oil and gas blocks returned by Total. Previously, the company returned eight oil and gas blocks: Southeast Mahakam, Kutai Timur, Kutai II (coalbed methane/CBM), Sadang, Sageri, Amborip VI, Arafura Sea, and Southwest Birdhead Papua. (Read: Total E&P Returns 8 Oil and Gas Blocks to Government)

Total now manages just six oil and gas blocks in Indonesia. They are the Tengah Block, Telen Block, South Mandar, Sebuku Block, Bengkulu I Mentawai Block and Mahakam Block. The latter will be handed over to Pertamina after its contract expires at the end of 2017. After Pertamina takes over the block, Total and Inpex Corporation will still have a chance to manage the block with a maximum participating interest of 30 percent. (Read: Total Asks More Time to Decide on Mahakam Block)

The Tengah Block will expire in 2018 and the company plans to return the block to the government. According to Novi, the block will be managed by Pertamina because it is now part of the Sisi Nubi field in the Mahakam Block, which will be managed by the state oil firm from 2018. “We will hand it over to Pertamina although its contract will not end until October 2018,” he said.