Pertamina to Appoint Independent Appraiser for Mahakam Block

KATADATA - Pertamina plans to appoint an independent appraiser to recalculate the asset value of the Mahakam block, even though it has already been appraised by the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas).

Pertamina’s Upstream Director Syamsu Alam said that although the company already had several candidates, Pertamina had yet to select an independent appraiser. One thing for sure is that the appraiser must be certified and recognized by business players.

The involvement of an independent appraiser is to ensure fairer calculation of the remaining reserves in the Mahakam block, which can be used a reference to determine stock prices in the Mahakam block. "We’re going to discuss this matter with the potential partners," he said in Jakarta, Tuesday (2/9).

(Read: Total has High Chance to Buy Mahakam Block Stocks Not Accordance to Asset Value)

Although Syamsu is aware of the SKK Migas valuation of the block’s assets, he does not know what indicators the agency used in their calculations. As reported earlier, SKK Migas has announced that the surface asset value of the Mahakam block in December 2015 was US$4.79 billion, or around IDR66.5 trillion. Its value will shrink when the oil and gas block is handed over to Pertamina in 2018.

Over the next two years, the value of the assets will depreciate by US$1.34 billion, or IDR18.7 trillion. So, when the contract with Total E&P Indonesie ends on 31 December 2017, the estimated value of the remaining assets will be US$3.45 billion, or around IDR47 trillion. Based on the 2017 value of the block’s assets, the value of 30 percent of shares of the Mahakam block is US$1.03 billion, or around IDR14.3 trillion.

However, tough negotiations on the division of 30 percent shares of the block lie ahead. Pertamina and its potential partners, Total E&P Indonesie and Inpex Corporation, have yet to reach an agreement. According to Syamsu, Pertamina is still awaiting a response from the management of Total and Inpex. "Perhaps they are still reviewing the terms and conditionsof the new contract and deciding whether it was still viable," he said.

(Read: Total Negotiates Stock Value of Mahakam Block with Pertamina)

At the signing of the production-sharing contract for the Mahakam block by Pertamina and SKK Migas last year, the government established a dynamic range split contractor revenue over cost (R/C) scheme. This will be the first time this new scheme has been used in Indonesia. Under this scheme, the greater the revenue and the lower the cost, the share of revenue received by the state will be higher.

Since the block holds more gas reserves than oil reserves, the government gets a share of at least 65 percent of gas production if the ratio of acceptance is below one-time the production cost, while the rest is for the contractor. The government will receive a share of up to 75 percent if the acceptance ratio is more than 1.6 times the cost of production.

As for oil, the government will receive at least an 80 percent share, while the remaining 20 percent is for the contractor. The maximum government share of the block’s oil production is 90 percent.

Before becoming the full operator on 1 January 2018, Pertamina has formed a team to prepare a work plan and budget (WP&B). The team will begin preparing the work plan and budget in the middle of this year. "So next year we will have the WP&B for 2018. And in the middle of 2017 we’ll begin holding talks with SKK Migas for 2018," he said.

(Read: DPR Considers Mahakam Block’s Signature Bonus Too Expensive)

Pertamina has prepared an investment plan to develop the Mahakam Block. As the new operator of the block, Pertamina estimates that the total investment for the first three years will be US$75.3 million, which consists of first year contract of US$1.3 million, the second year of US$33.5 million, and the third year of US$40.5 million. Earlier, Pertamina announced that the investment needed for the Mahakam block was US$2.5 billion per year.