PetroChina Locked Out in Indonesia Gas Dispute

PetroChina International said on Monday that access to 14 of its oil and gas wells in Sumatra island, Indonesia, had been blocked by a local government hoping to secure energy supply.

Domestic disputes over how Southeast Asia’s largest economy manages its resources are common. Central and regional administrations often disagree over authority and overlapping permits as a result of increased regional autonomy.

Indonesia struggles to attract investment to reverse declining oil output amid ballooning domestic energy demand, but has faced international criticism for unstable regulations and its nationalist stance on resources.

“They’ve locked the gates so we can’t get in to carry out maintenance,” PetroChina International Companies Indonesia communication manager Novie Latanna said, referring to East Tanjung Jabung administration.

“We cannot be sure the wells are operating safely,” she said, adding that the wells were still producing 433 barrels of oil and around 11 million standard cubic feet of gas a day.

“The problem is they’ve asked for gas,” Latanna said, explaining that the local government had requested 5 million standard cubic feet of gas per day for local electricity supply last year.   “But the process to supply that gas has been lengthy… Perhaps the local government wanted it quickly,” she said, adding that the local government had witheld PetroChina’s land permit as a result.

“If all goes according to the deadlines agreed to in the road map, the gas purchase agreement is expected to be signed in November 2013.”

Indonesia’s central government, which oversees its oil and gas industry directly via upstream regulator SKKMigas, criticised East Tanjung Jabung administration for the move and requested that the seals on entrances be removed.

“Regional administrations shouldn’t do that,” Deputy Energy and Mineral Resources Minister Susilo Siswo Utomo told reporters.

“We always explain this but they’re impatient… We request that the (wells) are not sealed so that production can continue.”

SKKMigas spokesman Elan Biantoro said the East Tanjung Jabung had acted outside its authority.

“We’re disappointed. Why did they have to seal them. They’re sealing state assets. This shows they don’t understand the oil and gas industry,” he said, urging the local government to be more understanding of the processes involved.

“Buying and selling gas is not like buying and selling tofu and tempe,” he said. According to PetroChina, a team from SKKMigas will meet the regional administration on Tuesday.

Ongoing problems   

While the incident covers only a small amount of the company’s overall production, it is not the first time the wholly owned Indonesian unit of PetroChina Ltd  , China’s main oil and gas producer, has faced problems.

PetroChina’s Indonesian CEO was replaced in 2011 in a separate dispute also in Jambi, and also in connection with the issue of permits involving the local administration, Biantoro said.

“They made a mistake in the permit process, and that mistake was fatal,” Biantoro said.

“Consequently we sent home their general manager. He was Chinese. He didn’t understand the procedures.”

Biantoro said in that dispute PetroChina had applied for a drilling permit from the regent of West Tanjung Jabung, not the central government as required. At that time the regional administration had also sealed PetroChina’s drilling rigs, he said.

However, according to the regulator, its decisions to replace the CEOs of international oil companies is nothing to worry about.

“The decision not to extend (work permits) has already been carried out with nine CEOs, one of whom was (the former CEO of ExxonMobil Indonesia Richard Owen). For us it is something normal. At the same time there was also (the CEO of) Petrochina, but nobody protested about that,” upstream regulator chief Rudi Rubiandini told Reuters in an interview, asserting that the moves “did not have an impact on investment”.

PetroChina’s net production from its Jabung operations reached approximately 16,345 barrels of oil and 265 million standard cubic feet of gas per day as of January according to data from SKKMigas, making it the country’s ninth-biggest oil and gas producer.

The company exports its gas from Jambi province to Singapore via pipeline.