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.