Exxon, Pertamina reach agreement on Cepu oil block<\/p>\n
Urip Hudiono, The Jakarta Post\/Jakarta<\/p>\n
U.S energy giant ExxonMobil Corp. and state oil and gas firm PT
\nPertamina have officially reached an in-principle agreement to
\nsettle their four-year dispute in developing the untapped oil-
\nrich Cepu block, officials said.<\/p>\n
The two sides agreed on a participating interest and an
\nadjusted production sharing scheme.<\/p>\n
Following the agreement, the two parties are expected to be
\nable to sign a joint ownership agreement (JOA) to develop the
\nCepu block and a production sharing contract (PSC) with the
\ngovernment within the next 90 days.<\/p>\n
Exxon also agreed to pay Pertamina US$400 million as
\ncompensation for extending its contract to develop the Cepu
\nblock. The company will pay 75 percent of it in cash this year,
\nwith the balance to be paid gradually over three years.<\/p>\n
Head of the government negotiating team Martiono Hadianto
\nannounced on Friday that all substantial issues had been settled.<\/p>\n
"What remains now is working out the procedural details," he
\nsaid, and added that the team would give its report on the
\nagreement to State Minister of State Enterprises Sugiharto on
\nMonday.<\/p>\n
Martiono said Pertamina and Exxon had agreed on a
\nparticipating interest for the Cepu block of 45 percent each and
\na 10 percent stake for the local administrations where the oil
\nfields are located.<\/p>\n
Located on either side of the border of Central Java and East
\nJava, the Cepu block is estimated to contain two billion barrels
\nof potential oil reserves and 11 trillion cubic feet of potential
\ngas reserves, and significantly, is expected to increase the
\ncountry's oil output by 18 percent.<\/p>\n
As for the production split, Martiono said it would vary
\naccording to the oil price at the time.<\/p>\n
If the oil price averages over US$45 per barrel in any given
\nyear, the production share will be 85 percent for the government
\nand 15 percent for the three parties of Exxon, Pertamina and the
\nlocal administrations.<\/p>\n
If the oil price is between $40 and $45 a barrel, the share
\nratio will be 80:20; and if the oil price is between $35 and $40,
\nthe share becomes 75:25.<\/p>\n
Lastly, if the oil price falls below $35 per barrel, the
\nproduction share becomes 70:30.<\/p>\n
With such a scheme, the share for Exxon will be between 6.75
\npercent and 13.5 percent, while the government will get between
\n70 percent and 85 percent.<\/p>\n
Under the previous contract between Pertamina and Exxon, the
\nproduction share was set flat at 80 percent for the government
\nand 20 percent for Exxon.<\/p>\n
Negotiating team spokesman Rizal Mallarangeng said the split
\nscheme would fit the criteria of settling the dispute by
\nproviding a win-win solution for all parties.<\/p>\n
"According to the adjusted share scheme, if oil prices are
\nhigh, then the government will get most of the benefit," he said.
\n"If oil prices are low, the share shifts to the benefit of
\ninvesting contractors as an incentive for them."<\/p>\n
Martiono added that in any situation, the share for the
\ngovernment would always be the highest.<\/p>",
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