ExxonMobil, Pertamina from Cepu joint venture

Leony Aurora, The Jakarta Post, Jakarta

The production sharing contract (PSC) to develop the oil-rich Cepu block will be signed by the government and a joint venture composed of subsidiaries of U.S. energy giant ExxonMobil and state oil and gas firm PT Pertamina.

Pertamina Commissioner Umar Said said on Wednesday that a company subsidiary to be called Pertamina Cepu would be set up by the end of this month.

"Pertamina Cepu and ExxonMobil Cepu Ltd. will form a joint venture and sign (the contract) with BP Migas," said Umar, referring to the Upstream Oil and Gas Executive Agency, on the sidelines of a seminar on energy legislation.

BP Migas represents the government in managing the country's oil and gas fields.

"The contract will not be signed by Widya," he added, referring to Pertamina President Director Widya Purnama.

It had been reported prior to the reaching of an agreement by Exxon and the government-sponsored negotiating team that Widya would refuse to sign the contract.

Widya was excluded from the negotiating team.

"Widya does not need to approve (the contract) as he will not be the one who signs it," said Umar.

After four years of dispute, Exxon and the negotiating team, represented by Pertamina Chief Commissioner Martiono Hadianto, signed a Memorandum of Understanding (MoU) on June 25 on the development of the Cepu block, which is located on the border between Central Java and East Java.

Both parties agreed to an adjusted production split scheme and contractors' participatory interests.

Under the deal, the contractors will get 15 percent of output and the government 85 percent if oil prices average over US$45 during the course of one year, while the contractors and government will get 30 percent and 70 percent respectively if prices stay below $35 on average over one year.

Pertamina will have a 45 percent participatory interest, Exxon another 45 percent, and local regencies the remaining 10 percent.

Under the scheme, Exxon and Pertamina will each get between 6.75 percent and 13.5 percent of total output.

Pertamina's general shareholders meeting last month tasked the board of directors with converting the MoU into a binding contract within 90 days of its signing.

The Cepu block is expected to produce 170,000 barrels of oil per day at its peak, about 17 percent of the country's current oil production.