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.