Exxon may choose joint venture scheme for Cepu

Exxon may choose joint venture scheme for Cepu

Fitri Wulandari, The Jakarta Post, Jakarta

U.S. energy firm ExxonMobil Oil Indonesia has hinted that it
is likely to choose an equal joint venture to develop the huge
oil and gas reserves of the Cepu block in Central and East Java.

ExxonMobil spokeswoman Deva Rachman said the company's
technical staff had worked together with Pertamina to analyze
several options to resolve the contractual issues.

"Negotiation are still ongoing. The scenarios analyzed
anticipate that Pertamina would share proportionately in future
investment," Deva said.

Previously, state oil and gas firm Pertamina proposed to
ExxonMobil a joint venture scheme to manage the Cepu blocks once
the latter's contract expired in 2010.

In the proposed scheme, Pertamina and ExxonMobil would split
equally 40 percent shares in the block. The remaining 60 percent
of the shares would go to the government.

Pertamina and ExxonMobil have been for years at odds over the
contract on the block.

ExxonMobil has been seeking to extend for another 20 years its
contract on the block, which expires in 2010, to allow it to
fully exploit Cepu's giant oil reserves it discovered about one-
and-a-half years ago.

The block is estimated to have a potential reserves of two
billion barrels of oil and 11 trillion cubic feet (TCF) of
potential gas reserves.

PT Humpus Patragas, a company owned by the youngest son of
former president Soeharto, Hutomo "Tommy" Mandala Putra, acquired
the Cepu block from Pertamina in the early 1990s. The company
later operated it under a technical assistance contract (TAC),
but sold its entire stake in the block to ExxonMobil in 1999.

A TAC is an agreement between Pertamina and an oil and gas
investor, allowing the latter to work in Pertamina's working area
to rehabilitate the existing wells or fields.

When the huge oil and gas reserves were discovered, ExxonMobil
asked for an extension of its contracts until 2030.

"ExxonMobil remains optimistic that an equitable solution to
the remaining contractual issues will be reached in the near
future," Deva remarked.

Deva also clarified allegations by BPKP (the internal audit
agency) and Pertamina on the operating costs spent by ExxonMobil
in Cepu.

BPKP said only $142 million of the total investment cost of
$459 million, which ExxonMobil claimed to have spent in 2002,
could be accounted for.

Deva insisted that ExxonMobil subsidiaries in Indonesia had
spent in excess of $450 million for acquiring, exploring and
planning for the development of resources covered by the Cepu
TAC.

"All of our expenditure to date is supported by legitimate
documentation and is subject to audit," Deva asserted.

Of the $450 million, a substantial portion has already been
validated through the normal Indonesian audit process as required
by oil and gas cooperation contracts, while "the remaining cost
will be subject to similar review," Deva said.

However, Deva declined to mention how much of the figure had
been audited.

Under the existing contract, ExxonMobil can recover
expenditure it has made on the block. The expenditure will be
deducted from the output of the block. Thus, the higher the
expenditure, the lower the oil revenue to be received by the
government.