State oil and gas firm PT Pertamina will team up with a local company, Wahana Universal, to build an oil refinery in East Java at a cost of US$20 million.
Pertamina exploration and production director Hestu Bagyo said that the two companies had signed an agreement to build the refinery, which will have a total capacity of 6,000 barrels per day.
"The construction of the project will start in October 2008 and it is scheduled for completion in December 2008, when the Cepu block oil and gas well starts producing," he said as quoted by Antara on Saturday.
Cepu, located along the border between East Java and Central Java, contains an estimated 600 million barrels of oil and 1.7 trillion cubic feet of gas.
The block is expected to produce 25,000 barrels of oil a day when it starts production, targeted for early 2009. This figure could rise to some 165,000 barrels a day in two or three years time.
However, the government wants the block to start producing earlier than the target date to help the government meet its target of a 30 percent increase in oil production by 2009. Under a fast-track program, the block is expected to produce some 10,000 barrels of oil per day by the end of 2008.
The block is operated by U.S. energy giant ExxonMobil and Pertamina.