Govt, Exxon near deal on Cepu project

Govt, Exxon near deal on Cepu project

Rendi A. Witular, The Jakarta Post, Jakarta

U.S. energy giant ExxonMobil Corp. has accepted a revenue sharing
scheme proposed by the government, indicating an end to its four-
year dispute with state oil and gas firm PT Pertamina in
developing the untapped oil-rich Cepu block, officials said.

ExxonMobil has agreed to accept 6.75 percent of revenue based
on an oil price of above US$45 a barrel, and 13.5 percent if the
price drops below $35 a barrel, government negotiating team
spokesman Rizal Mallarangeng told reporters on Wednesday.

However, the composition of the revenue split is subject to
amendment should there be an adjustment in global oil prices.

"The government and ExxonMobil have agreed to settle key items
in the deal, such as revenue splitting and compensation fees.
Other minor items are unlikely to stall the negotiations," said
Rizal after meeting Vice President Jusuf Kalla to report
progress.

The team expected the split for Pertamina will be the same
amount as that offered to ExxonMobil, while the share for the
government will be between 70 percent, if the oil price is below
$35 per barrel, and 85 percent, if it rises above $45.

Based on these negotiations, Rizal said, the government would
have 45 percent participation in the project and 45 percent would
be equally divided among the contractors -- ExxonMobil and
Pertamina -- with the remaining 10 percent being given to the
local administration.

He added that aside from the revenue split, ExxonMobil had
also agreed to pay compensation amounting to $400 million for the
contract extension. Should everything go according to the plan
and the contract is signed this year, ExxonMobil would be able to
extract oil from the block until 2035.

With the settlement of the key items, the government and
ExxonMobil are expected to sign a comprehensive settlement
agreement by next week, as a basis for both parties to eventually
sign a working contract to develop the Cepu field.

Another member of the negotiating team, Muhammad Ichsan, said
the two parties would need about three months after the signing
of the agreement for sealing the working contract, since it would
need the involvement of lawyers to arrange the legal language.

"There is still some time needed before the government and
ExxonMobil are able to seal the working contract. However, we are
optimistic that the oil in Cepu can start spurring out in 2008,"
he said.

The Cepu block is estimated to contain two billion barrels of
potential oil reserves and 11 trillion cubic feet of potential
gas reserves, which is expected to increase Indonesia's oil
output by 18 percent. Indonesian oil output has been declining
over the last five years.

The block, located on the border of Central Java and East
Java, is owned by Pertamina but operated by ExxonMobil Indonesia
under a technical assistance contract (TAC).

However, ExxonMobil has stalled the development of the block
since 2001 in order to seek an extension to its contract that is
set to expire in 2010, as well to obtain a greater share in the
block.