Exxon, Pertamina told to settle dispute

Bloomberg, Jakarta

President Susilo Bambang Yudhoyono ordered state oil and gas company PT Pertamina and Exxon Mobil Corp. to settle a dispute that has stalled development of the nation's biggest untapped oil field for more than three years.

Exxon and Pertamina on Wednesday resumed talks about the Cepu field and had until May 20 to reach an agreement under a deadline set by Coordinating Minister for the Economy Aburizal Bakrie, Rizal Mallarangeng, a spokesman for the negotiating parties, told reporters on Wednesday.

"This is a direct order from President Susilo to settle this matter as soon as possible," Mallarangeng said.

Cepu in Central Java will add about 18 percent to Indonesia's current oil output, helping to stem a production decline that averaged more than 5 percent annually in the past five years. Falling output may end Indonesia's status as a net oil exporter, forcing it to quit the Organization of Petroleum Exporting Countries (OPEC).

Indonesia has failed since early 2002 to meet its OPEC output quota, currently at 1.425 million barrels a day.

"An agreement is for the benefit of the nation because we have to stay a net crude oil exporter," Mallarangeng said. "It's also important to improve our investment climate and to make Pertamina a bigger company."

Exxon met Pertamina's negotiating team on Wednesday and remains interested in developing Cepu, Exxon spokeswoman Deva Rachman said, without giving details.

Exxon has stalled development of Cepu, which may hold about 500 million barrels of oil, since 2001 because Pertamina wants to cut Exxon's stake before extending a project license. The field could produce 170,000 barrels a day.

In 2001, the House of Representatives enacted a law to bring an end to the type of so-called technical assistance contract that gave Exxon a license until 2010 to develop Cepu, with 35 percent of any oil produced. Under an agreement with the government, Pertamina would get 40 percent of any oil produced after 2010. Exxon's request for a 20-year extension of its license and half of Pertamina's share, or 20 percent, after 2010 was refused in 2003.

The companies later reached an initial agreement for the extension to be granted in exchange for Exxon paying $85 million, financing 90 percent of the cost to develop the field during the first year, giving up its right to two neighboring fields and including Pertamina in several overseas operations.

Pertamina's initial agreement with Exxon was retracted in August last year, when the government appointed new directors at the state oil company.