Cepu deal being studied by ministry

Leony Aurora, The Jakarta Post, Jakarta

Despite the principal agreement reached by the government- sponsored team on the offshore Cepu oil block, the Ministry of Energy and Mineral Resources still must evaluate the new contract after it is submitted by state oil and gas firm Pertamina.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro said his office, which approves all activities in the mining sector, was waiting to see what the new contract looked like.

"We will check whether (the contract) complies with prevailing legislation and if it benefits the state," said Purnomo on the sidelines of an energy seminar here on Wednesday.

As Pertamina holds the concession rights to the block for the owner, its deal with U.S. energy giant ExxonMobil was conducted business-to-business, he said.

At the corporate level, the deal must comply with bureaucratic procedures, such as whether it requires shareholder approval or the approval of the board of directors, the minister said.

"We have to follow the rules," said Purnomo.

Pertamina is scheduled to hold a general shareholders meeting on Thursday.

After four years of dispute, Pertamina and Exxon signed a memorandum of understanding last week on the development of the Cepu block, located along the maritime border between East Java and Central Java.

Exxon's contract for the block, which was to have expired in 2010, will be extended for 30 years in exchange for a lower share of the oil output.

The agreement, however, was signed not by the board of directors, but by Pertamina president commissioner Martiono Hadianto, who led the government-sponsored negotiating team.

The development of the Cepu block is deemed crucial for increasing Indonesia's oil output, which has been declining by about 5 percent annually.

At present, the country's crude and condensate production stands at slightly above one million barrels per day (bpd), down from some 1.6 million bpd in the mid-1990s. Cepu is thought to be able to produce about 170,000 bpd.

"I want Cepu to produce soon so it can increase our oil production," said Purnomo.

Negotiating teams from Pertamina and Exxon have agreed to an adjusted production split and participating interests in the block.

Contractors will get 15 percent of output and the government will receive 85 percent if oil prices average over US$45 a barrel for a year. If oil prices fall to below $35 a barrel, the contractors will receive 30 percent of output and the government 70 percent.

Pertamina will hold 45 percent of participating interest in the block, Exxon 45 and local regencies, as stipulated by law, the other 10 percent.

Under such a scheme, Exxon would receive between 6.75 percent and 13.5 percent of all output, down from 35 percent of production as stipulated in the old contract.