ExxonMobil promises billions in benefits for Cepu

ExxonMobil promises billions in benefits for Cepu

Endy M. Bayuni, The Jakarta Post, Jakarta

ExxonMobil Corp, which has been locked in negotiations with
the Indonesian government to develop a huge oil field in East
Java, says it plans to spend $2 billion on the project.

That money will include building infrastructure, creating jobs
for the locals, and bringing in other social benefits like
schools and medical clinics to the area.

The Texas-based oil giant says it could get the field in Cepu
to start producing within three years after it gets the go ahead,
and potentially reaches full capacity of up to 170,000 barrels
per day during that time.

That, according to ExxonMobil President Rex Tillerson, would
bolster Indonesia's crude oil production by about 20 percent from
its present capacity.

Using the conservative government assumption of $35 a barrel
for the oil price, on average, for 2005, Cepu could bring in $1.5
billion in extra revenue a year to Indonesia, he said.

"It will have a huge impact on the oil supply for Indonesia,
but also for its oil export," Tillerson said in an interview with
The Jakarta Post and Kompas on Monday.

In town for the major oil and gas conference this week,
Tillerson used the opportunity to meet with Indonesian officials
to discuss the fate of the Cepu field as well as ExxonMobil's
activities in Indonesia.

ExxonMobil struck oil in Cepu in 2001 with reserves estimated
at 600 million barrels, making it the largest oil discovery in
Indonesia in the last three decades. However, the company has
been seeking to extend its concession beyond the present 2010
before investing in and developing the field.

Indonesia, for its part, had demanded a greater share of the
oil from Cepu. An initial agreement to jointly develop the field
on a 50-50 basis with Pertamina had been signed, but the two
sides are still in a dispute over the amount of money the state
oil giant has to reimburse ExxonMobil. Pertamina is disputing
Exxon's claims that it spent $450 million to discover the field.

Pressed for hard currency, pressure is mounting on Jakarta to
compromise. Indonesia's oil production has been declining in the
absence of new oil discoveries. It has also not been able to
produce its 1.3 million OPEC production quota, and rising
domestic fuel consumption has turned Indonesia into a net oil
importer.

President Susilo Bambang Yudhoyono wants the dispute with
ExxonMobil resolved as part of his government's strategy to
improve Indonesia's reputation among foreign investors.

"We understand how important Cepu is to the country. It's
important to us. We've risked a lot of money out there to find
it," Tillerson said. "We want to move on with the development."

He was particularly encouraged with the new government,
noticing that negotiations, which stalled under President
Megawati Soekarnoputri, had resumed.

The choice for Indonesia, as one senior Cabinet member puts
it, boils down to either having the field developed now and
reaping the benefits, or letting Exxon's concession expire in
2010 and developing the field itself, gaining 10 or 20 percent
more of the revenue some 10 years later.

ExxonMobil is already in an advance stage in its plan to
develop the Cepu field, and that includes plans to build roads
and other infrastructure, create jobs for the people in the
region, and build social service facilities like schools and
clinics.

Tillerson pointed out that ExxonMobil's experience in managing
the Arun gas field in Aceh was proof that they could bring
benefits to the people.

"In Aceh, we have treated over two million people at our
clinic. That's an extraordinary figure," he said.

ExxonMobil has been operating in Indonesia since 1898 under
different names like Esso and Mobil. Today, its activities are
integrated under ExxonMobil Oil Indonesia Inc, which operates the
Arun gas field and is also developing the huge gas field near the
Natuna Islands in the South China Sea.

Tillerson praised the new government in Jakarta for
recognizing the need to make the oil and gas sector more
attractive to foreign oil companies, and to reduce the
bureaucratic processes that have deterred investors in recent
years.

"There may be some further improvement needed. There is a good
dialog with the industry," he said.

Indonesia needed to make the process of awarding concessions
more transparent as well as competitive, he said. "The rules can
be what the rules are. As long as we know what they are, and that
they are the same for everyone..."

Tillerson cited a recent survey -- which ranked Indonesia near
the bottom in terms of attractiveness for oil investors -- as one
reason for the government to review its oil policy and make the
huge risk of exploring for oil in Indonesia more rewarding.

"The real fundamental issue is how the government wants to set
the terms to provide the opportunity to share in the successes,"
he said. "The failures (of discovering oil) are ours, it doesn't
cost the government anything."