Wed, 25 Sep 2002

ExxonMobil handed deadline to split Cepu ownership

A'an Suryana, The Jakarta Post, Jakarta

State oil and gas company Pertamina stepped up pressure on U.S.-based ExxonMobil Oil to split its ownership of giant oil field Cepu by saying on Tuesday that it wanted a deal by November.

Pertamina upstream director Iin Arifin Takhyan said that he expected a memorandum of understanding to replace ExxonMobil's expiring contract by Nov. 1.

"The date has been repeatedly delayed, so we have to sign a final agreement by Nov. 1," Arifin said prior to a hearing with the House of Representatives' Commission VIII on mines and energy affairs.

He did not say what would happen if the deadline passed without a deal, but a Pertamina official who declined to be named said that the company would let President Megawati Soekarnoputri decide.

Pertamina and American oil giant ExxonMobil have been at odds over the conditions to allow the latter to extend its contract over the Cepu oil blocks located in Central and East Java.

ExxonMobil is reportedly seeking another 20 years for its contract, which expires in 2010, to allow it to fully exploit Cepu's giant oil reserves it discovered about one and a half years ago.

ExxonMobil claims the oil fields hold reserves of about 250 million barrels. But a recent study by the state oil and gas research institution (Lemigas) showed that the actual oil reserve was twice the amount at 500 million barrels of oil.

The discovery surprised Pertamina, which once owned Cepu before it was coerced into selling its shares in 1990 to Humpuss Patragas -- a company belonging to former president Soeharto's youngest son Hutomo "Tommy" Mandala Putra. Cepu was later bought out by ExxonMobil.

As ExxonMobil seeks a contract extension from the government, Pertamina is targeting to reclaim a 50 percent stake in Cepu.

ExxonMobil operates Cepu under a Technical Assistance Contract (TAC), normally reserved for small oil companies like Patragas.

Under this type of contract, ExxonMobil owns a 25 percent stake while Pertamina owns 10 percent, leaving the rest for the government.

Pertamina's bid to halve ExxonMobil's ownership of Cepu would end with both companies owning a 17.5 percent stake each.

ExxonMobil has offered a 16.25 percent share, but after 2010.

Upstream director Arifin said that talks also stalled on the amount of compensation Pertamina should receive from ExxonMobil, which the latter agreed to pay.

By not giving ExxonMobil a new contract would pave the way for Pertamina to again fully own the Cepu block after 2010.

But reports of lobbying from ExxonMobil's side may still cloud Pertamina's prospects at Cepu, with one source saying that State Intelligent Agency (BIN) approached Pertamina to ease its pressure on ExxonMobil.

Extending the contract would spur Indonesia's battered investment climate, however, it would be at the expense of Pertamina.

For now the decision on whether it will extend ExxonMobil's contract rests with Pertamina's board of commissioners. The board is chaired by Minister of Energy and Mineral Resources Purnomo Yusgiantoro and its members, who include Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti and Minister of Finance Boediono.

The board, however, will pass the decision on to President Megawati if no the deal is reached by the November deadline, the Pertamina source said.