Balak Signs First Production Contract

The newly formed Indonesian oil and gas organization, Balak, has signed its first production sharing contract for a 20-year deal between Pertamina and Riau province. Balak has taken over the administration of PSCs from Pertamina under oil and gas laws approved by parliament late last year. Administering PSCs will be the main role of Balak, which is charged with supervising upstream business activities for oil and gas.

"The contract is for 20 years with a production split of 85:15 percent in favor of the government," Balak chairman Rachmat Sudibyo said. The contract was signed between PT Bumi Siak Pusako, a company owned by the local government in Riau, and Pertamina to operate the Coastal Plain Pekanbaru (CPP) oil block. That block was previously operated by Pertamina and Chevron Texaco's Caltex Pacific Indonesia. The operation of the block will be officially handed over on August 9. "We hope the production at the block can be increased from the current 42,000 barrels per day," Sudibyo said. The operation of the block will be equally shared by Pertamina and Riau province, which is close to Singapore.

Indonesia's Petroleum Association has welcomed the establishment of the organization but said removing Pertamina from the equation had raised some concerns among foreign companies about the security of their contracts. The creation of Balak is one of several steps which will eventually result in Pertamina losing its monopoly of more than 30 years. The next step will be a body which oversees the downstream sector. The state oil firm is due to become a limited liability company early next year ahead of full privatization in 2006.