Pertamina and BP Sign Java Gas Agreement

Pertamina and BP have signed a memorandum of understanding for gas development and sale from the Kepodang field offshore central Java. Indonesia Power, a unit of state-owned utility company PT PLN, will offtake the gas developed in Kepodang, "a virgin field" in BP's Muriah production sharing contract area, said Budiman Parhusip, vice president of BP Indonesia's gas business.

"The MOU provides a framework for negotiation, under which BP will agree to a (gas) price mechanism, the take-or-pay level and a payment guarantee," said Budiman. The MOU will thus be used as a reference for future gas price negotiations between BP, Pertamina and Indonesia Power. BP is an operator-cum-contractor, while Pertamina acts as a government intermediary in the management of production sharing contracts.

BP drilled three delineation wells in the Kepodang field in 2001, and plans to develop the field for gas production by the third quarter of 2005, said Budiman. The Tambak Lorok power plant in Semarang, central Java will be supplied with 147 million standard cubic feet a day of gas from the Kepodang field when the production starts.

However, BP needs to be competitive in pricing if it wants to secure the gas sale contract, a Pertamina executive stressed, adding the MOU is "meaningless, otherwise." BP and Pertamina have had difficulties because BP hasn't been able to deliver gas in accordance to its contractual supply monopoly in east Java, consequently creating a supply shortfall that needs to be offset by costly diesel imports. BP has since agreed to relinquish the gas supply privileges in east Java, Pertamina and BP officials confirm.