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Pertamina wins bid to take major Indonesia oil block from Chevron

Rokan takeover part of country's efforts to nationalize 'strategic assets'

Pertamina beat out its sole contender Chevron, which has been operating Rokan since 1971.   © Reuters

JAKARTA -- Indonesia’s state-owned oil and gas giant Pertamina has won a government bid to take control of one of the country’s largest oil blocks in Sumatra from its long-time operator, Chevron, after the latter’s contract expires in 2021.

Pertamina offered a "better proposal" for the operation of Rokan Block in Riau Province -- including a $784 million signature bonus and a $500 million exploitation commitment, the energy ministry said in a press statement on Tuesday. 

It beat its sole contender, Chevron, which has been operating Rokan since 1971 and sought a 20-year extension to its old production sharing contract due to expire in 2021. The U.S. company, through its local unit Chevron Pacific Indonesia, reportedly promised to invest $88 billion through 2041 to boost production in Rokan, if it was granted a renewal.

Pertamina pushed for the takeover despite questions about its financial capacity following last year’s profit slump, as well as its plans to shed some assets and delays in major refinery projects amid tightening financial condition. The company, which is fully owned by the government, has been under pressure not to increase subsidized fuel prices despite rising global crude prices, with the 2019 elections looming.

“The figures offered by Pertamina show that its finances remain in good condition,” energy ministry spokesman Agung Pribadi said in the statement.

The ministry called Rokan a "strategic asset." It produced 207,000 barrels of oil per day in the first half of this year, about a quarter of the nation's total crude oil output. It had been Indonesia’s largest crude producing block until last year, when Exxon Mobil’s Cepu Block operation on Java island surpassed Rokan’s production in the first half.

Tuesday’s announcement came just months after Pertamina in January officially took over Mahakam Block, a major gas block in East Kalimantan Province -- from France’s Total E&P Indonesie and Japan’s Inpex. 

Nationalization of strategic assets previously controlled by foreign companies is gaining steam ahead of Indonesia’s presidential election next April. Last month, state mining holding Indonesia Asahan Aluminium (Inalum) and U.S. miner Freeport-McMoRan agreed on a price for Inalum’s takeover of the majority stake in Freeport Indonesia, which operates one of the world’s largest gold and copper mines in Papua Province. Freeport’s contract there is due to expire in 2021.

The energy ministry, however, dismissed the notion that election year might have affected the Rokan decision, saying it will help Pertamina increase its contribution to national oil lifting from the current 23% to 60% in 2021.

Some local observers noted that Pertamina’s control of Rokan will help it reduce reliance on imports to meet domestic needs.

"The decision was made purely on business and economic considerations," Pribadi said.

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