Govt clears way for Cepu block deal

Govt clears way for Cepu block deal

Leony Aurora and Rendi A. Witular, The Jakarta Post, Jakarta

A new regulation amending a previous one on the upstream oil and
gas sector has been issued to speed up the settlement of the Cepu
block dispute, but could also be used for similar cases in the
future, a minister says.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said on Tuesday that the new government regulation (No. 34/2005)
was needed to accelerate the development of oil-rich areas and
raise oil output.

"Increasing oil output must be the priority," he said.

The new regulation, signed by President Susilo Bambang
Yudhoyono on Sept. 10 before he left for the U.S., clears away
some obstacles to the agreement for the development of the Cepu
block that was sealed by a government-sponsored negotiating team
and U.S. energy giant ExxonMobil.

The regulation amends Article 103 of Government Regulation No.
35/2004 by making contracts extendible to 30 years instead of the
usual 20 years.

Under the Cepu deal, it has been agreed that ExxonMobil's
contract will be extended by 30 years.

The exception will be applicable only in areas that have
substantial oil and gas reserves that are capable of being
exploited quickly in blocks previously owned by state oil and gas
firm PT Pertamina.

"It applies to Cepu, but in the future this regulation can
also be applied generally," said Purnomo.

The amending regulation also enables local government-owned
enterprises to take participating interests in such blocks.

State Secretary Yusril Ihza Mahendra said on Monday that Exxon
and Pertamina had agreed to take participating interests of 50
percent each in which the two will then allocate 5 percent each
to the relevant local administrations.

As the block straddles the border between Central Java and
East Java, the two provincial administrations, as well as
Bojonegoro regental administration, will receive interests.

The development of the Cepu block is deemed crucial to
increasing Indonesia's oil output, which has been declining by
about 5 percent annually.

At present, crude and condensate production stands at slightly
above 1 million barrels per day (bpd), down from some 1.6 million
bpd in the mid 1990s. Cepu is expected to contribute 170,000 bpd
at its peak.