Exxon case close to settlement, Kalla says

Exxon case close to settlement, Kalla says

The Jakarta Post, Jakarta

U.S. energy giant ExxonMobil Corp. may accept the revenue sharing
scheme proposed by the government and end its prolonged row with
state oil and gas firm PT Pertamina in developing the oil-rich
Cepu block, according to Vice President Jusuf Kalla.

Kalla was confirming reports in several local media outlets that the
government may agree to pay ExxonMobil 13.5 percent of the
revenue derived from the block, which is less than the usual 15
percent share for the contractor.

"The final result will be that figure (13.5 percent). There is
a formula to calculate the (revenue) split, but the end result
will be more or less similar to that," he said after attending
Friday prayers at his office.

Kalla said the government was hoping to wrap up the
negotiations with ExxonMobil with a view to extending the
company's contract for developing the field as well as the
revenue composition split within the next one or two days.

With that, the government will gain a 70 percent share of the
revenue, with the remaining 30 percent allocated for the field
contractors, in this case Pertamina and ExxonMobil, as well as
the local administration.

It is expected that the Pertamina share will be the same as
that offered to ExxonMobil, with the local administration
expected to obtain the rest.

The Cepu block -- located on the border between Central Java and
East Java and owned by Pertamina but operated by ExxonMobil
Indonesia under a technical assistance contract (TAC) -- has vast
oil reserves.

The block is estimated to contain two billion barrels of
potential oil reserves and 11 trillion cubic feet of potential
gas reserves, which is expected to increase Indonesia's oil
output by 18 percent. Output has been declining over the last
five years.

ExxonMobil has said that the block could produce oil at a
rate of 170,000 barrels per day (bpd). The block is expected to
start producing oil by 2008.

However, the development of the block has been stalled since
2001 as negotiations between ExxonMobil and Pertamina continued
on, among other things, a contract extension and revenue split.

Aside from the revenue split, ExxonMobil has also agreed to
pay compensation amounting to US$400 million for the contract
extension, said Rizal Mallarangeng, spokesman for the government-
sponsored negotiating team working on the Cepu dispute, on a
separate occasion.

"They (ExxonMobil) will pay $70 million right after the
(contract) signing while the rest will be paid within three
years," he said.

However, he said that the bonus would not be factored into
cost recovery from developing the block.

Should everything go according to plan and the contract is
signed this year, ExxonMobil will be able to extract oil from the
block until 2035.

"The new contract will be valid for 30 years from the time of
signing," said Lin Che Wei, another member of the negotiating
team.

ExxonMobil's current contract with Pertamina, which expires in
2010, will be automatically terminated. The new contract will
take the form of a production sharing contract (PSC) scheme, as
the current oil and gas law no longer recognizes TACs.