Medco’s Aceh block contract extended for another 20 years

The Energy and Mineral Resources Ministry has extended PT Medco E&P Indonesia’s contract for Aceh’s Block A gas field for 20 years, an official said Monday.

“The central government has approved the contract extension for Block A, but the extension also requires approval from Aceh’s provincial government. I hear that the provincial government has also approved the extension,” ministry spokesperson Kardaya Warnika said as quoted by the ministry’s web site on Monday.

Block A contains an estimated 120 million standard cubic feet of gas per day (MMSCFD). The Alur Siwah gas field is the main field to be developed.

Medco E&P Indonesia holds a 41.67 percent participating interest in the block along with Premier
Oil Sumatera (North) BV (41.67 percent) and Japex Block A Ltd (16.67 percent).

Medco’s contract will expire in 2011. The Oil and Gas Law stipulates that contracts can be extended by up to 20 years. Medco’s contract extension has been a government priority.

The company is expected to supply gas to local fertilizer producer PT Pupuk Iskandar Muda.

Ministry director general for oil and gas Evita Herawati Legowo confirmed the approval. “[It] has been done, but we are still discussing some of the terms and conditions,” she said in a text message.

Oil and gas management in Aceh differs from other provinces. According to the law on governing Aceh, the province is entitled to 70 percent of the government’s revenue from oil and gas extracted from the region.

The law was part of the peace agreement signed between the government and the Free Aceh Movement (GAM) in 2005. Aceh is also expected to establish its own upstream oil and gas regulator,
which would replicate BPMigas at the local level.

Medco president director Budi Basuki said that the company, the central government and the provincial government were discussing how to incorporate the law into the extended contract. “We are now finalizing a production sharing contract that will accommodate the law on governing Aceh,” he said.

“We expect that production can start in the second quarter of 2013,” he said.

Medco E&P is a subsidiary of publicly traded Indonesian energy firm Medco Energi International.

State-owned oil and gas company PT Pertamina is in talks to acquire an indirect 27.9 percent stake in Medco Energi International (MEDC), whose shares rose in trading on the Indonesian Stock Exchange (IDX) following reports of the planned acquisition and contract extension.

MEDC closed at Rp 4,225 per share on Monday, up 14.97 percent from Friday’s close of Rp 3,675. MEDC share prices have climbed about 70 percent this year and jumped by more than 35 percent since rumors of the acquisition surfaced. MEDC has outperformed the broader Jakarta Composite Index, which has risen 38.5 percent since January.