Cepu contract may be signed this week

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.