Contract gives ExxonMobil Cepu until 2010

Contract gives ExxonMobil Cepu until 2010

Leony Aurora, The Jakarta Post, Bandung

The government cannot take over the oil-rich Cepu block from
state oil and gas company PT Pertamina and U.S. energy giant
ExxonMobil even if the companies continue to deadlock in their
negotiations on the issue of operatorship.

A clause in the production sharing contract (PSC) signed
between the contractors and the government on Oct. 17 stipulates
that the block will be returned to the state if there has been no
development during a specified period of time -- five or six
years -- chairman of the Upstream Oil and Gas Regulatory Agency
(BP Migas) Kardaya Warnika said on Thursday.

"If the deadline passes and the area has yet to be developed,
the contract will be automatically terminated," he said on the
sidelines of a symposium titled "To raise oil and gas output"
held by the Association of Indonesian Oil Engineering Experts
(IATMI) here.

"The work area will then return to government hands," he
added.

The development of the block has been further delayed
following a prolonged argument between Pertamina and Exxon on who
will become the operator of Cepu.

Pertamina has requested joint operatorship, and that the two
parties take alternating roles as the controller every five
years. Pertamina's president director Widya Purnama said on Nov.
11 that he would go to the President with the problem.

ExxonMobil remains firm that according to a memorandum of
understanding (MOU) signed with a government-sponsored
negotiating team in June, the Texas-based firm has been appointed
as the operator of the block.

Coordinating Minister for the Economy Aburizal Bakrie said on
Tuesday that the government would take over the block, located on
the border of Central Java and East Java, if the companies failed
to resolve their operatorship dispute.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro,
who opened the three-day event, said the government had suggested
that Pertamina and ExxonMobil form a joint operatorship.

"We have many examples (of such a cooperation)," he said. "Why
can't they do that?"

Kardaya cited the cooperation between Pertamina and Bumi Siak
Pusako as an example of a successful joint operatorship.
Alternating controlling roles, as suggested by Pertamina, he
added, would be difficult to implement.

"If, let's say, ExxonMobil has made a long-term plan, will
Pertamina also conform to that?" he said.

Indonesia is pinning high hopes on production from Cepu, the
country's biggest untapped oil reserve, to lift its current
production from 1.075 million barrels per day (bpd) on average
throughout this year.

In his presentation during the symposium, Kardaya said the
production target of 1.3 million bpd in 2009 would be impossible
to reach without output from the Cepu block, estimated to be
170,000 bpd at peak level.

ExxonMobil and Pertamina signed a PSC with the government on
Sept. 17 to develop the US$2.6 billion block.

According to the agreement, the contractors -- comprising
Pertamina and ExxonMobil with 45 percent each, and local
administrations with the other 10 percent -- will get either 15
percent or 30 percent of output depending on whether oil prices
average over $45 in one year or, below $35 in one year
respectively.