Cepu contract may be signed this week

Rendi A. Witular and Blontank Poer, The Jakarta Post, Jakarta, Surakarta, Central Java

The government has indicated that a contract to develop the untapped oil-rich Cepu block will be signed later this week by state oil and gas firm PT Pertamina, U.S.-based energy giant ExxonMobil Corp. and the government.

With the signing of the contract, ExxonMobil and Pertamina will be able to start oil exploitation in the areas, which is estimated will produce 170,000 barrels per day (bpd) at its peak, State Secretary Yusril Ihza Mahendra said on Wednesday.

"Within this week, we expect to sign a working contract to develop the Cepu field since all the necessary legal documents have been completed," he said after a teleconference with President Susilo Bambang Yudhoyono.

The production sharing contract to develop the block will be signed by the government and a joint venture between ExxonMobil's Indonesian arm and Pertamina, later to be called Pertamina Cepu.

Before the contract signing, a memorandum of understanding (MOU) to develop the Cepu block, located on the border of the provinces of Central Java and East Java, was signed on June 25 and ended a four-year dispute between Pertamina and ExxonMobil. Pertamina was represented by a team appointed by the government during the negotiations.

The government expects that the development of the field would help stem a decline in the country's oil production in recent years due to slow growth in oil exploration and exploitation amid a scarcity of investment. At present, the country's crude and condensate production stands at slightly above one million barrels per day (bpd), down from the 1.6 million bpd in the mid 1990s.

Despite the nearly closed deal, Bojonegoro regent Muhammad Santoso said he would ask that the government maintain the regency's participating interest in the project and resist any policy which would abolish this participation.

He said he had written a letter to the President demanding that the 10 percent interest for local administrations, which had already been decided in the negotiations and written into the MOU, should be executed immediately.

"I will meet the President after he completes his overseas trip to question him about the recently issued government regulation that amends a previous one on the upstream oil and gas sector and on our rights over the share in the block," he told The Jakarta Post.

As the block is situated on the border of two provinces, both these administrations plus the Bojonegoro regency are entitled to a share in the project.

Susilo signed Government Regulation No. 34/2005 on Sept. 10 to clear away certain obstacles for the development of the Cepu block, including the management of the 10 percent interest for local administrations.

Under the regulation, the government would temporarily take over the management of the local share in the block in order to prevent disputes between the local administrations.

ExxonMobil and Pertamina would take participating interests of 50 percent each, and then each allocate 5 percent to the relevant local administrations.