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In the midst of a simmering border confrontation between Malaysia and Indonesia in the Celebes Sea, Eni, Italy’s largest oil and gas company, is racing to complete a production-sharing contract extension for the nearby Ambalat block, which is capable of producing as much as 40,000 barrels of oil a day.

Although foreign energy companies seeking to extend production-sharing contracts with the Indonesian government are usually subjected to time-consuming delays and problems with authorities, in this case the Ministry of Energy and Mineral Resources is trying to speed up the process for both Eni and US-based energy giant Chevron.

The Navy charged earlier this week that Malaysian warships have repeatedly encroached deep into Indonesian territorial waters along an ill-defined undersea border. And Energy and Mineral Resources Minister Purnomo Yusgiantoro told reporters that as tension in the area escalates, both the government and Eni are increasingly concerned that the recent naval face-offs could disrupt the company’s exploration and prospecting activities.

The production-sharing contract that Eni signed with the government in 1999 is set to expire this year, Purnomo said. However, due to the geopolitical conflict in the area, Eni has yet to start drilling in Ambalat.

“Because of the dispute, Eni proposed to extend the exploration contract,” Purnomo said. “The government understands the situation there and we would like to give the extension. We have ordered Eni to continue with their exploration activities because the block is not included in the disputed area.”

Raden Priyono, the head of upstream oil and gas regulator BPMigas, said that he was convinced Eni could operate in the block with minimal risk.

“We will find a way to ensure that Eni can operate continuously in the area,” he said.

Priyono also said that BPMigas had recommended that the government extend Chevron’s contract in East Ambalat, citing the block’s strategic importance.

Indonesia and Malaysia have a history of overlapping maritime border claims in the Ambalat area. Tensions over the region came to a head after Malaysia’s state oil company, Petronas, granted energy giant Royal Dutch Shell a concession in the area on Feb. 16, 2005.
Both countries deployed warships and fighter planes to the area soon afterward, but diplomatic efforts eventually calmed the situation.
Indonesia claims Ambalat as part of its territory, and it argued that the concession granted by Malaysia overlapped with those the Indonesian government gave to Eni and Unocal in 1999 and 2004, respectively.

In October, Indonesia gave Eni the green light to construct a floating liquefied natural gas facility in Ambalat at an estimated cost of about $14 billion.