Govt gives green light for Cepu block

Govt gives green light for Cepu block

Urip Hudiono, The Jakarta Post, Jakarta

The government signed a contract on Saturday with state oil and
gas firm PT Pertamina and U.S.-based energy giant ExxonMobil to
develop the oil-rich Cepu block in another significant step
toward ending the four-year dispute surrounding the block.

The contract -- between the government's upstream oil and gas
regulator BP Migas, a separate Pertamina unit set up to manage
the block, Pertamina EP Cepu, and ExxonMobil subsidiaries Mobil
Cepu Ltd. and Ampolex Cepu Pte. Ltd. -- will enable the firms to
start oil exploitation in the block, which it is estimated will
produce 170,000 barrels per day (bpd) at its peak.

It entitles the companies to undertake exploration and oil
production for a period of 30 years in the Banyu Urip, Cendana,
Jambaran, Alas Dara and Kemuning oil fields -- each covering some
919 square kilometers -- in the block.

The contract was signed by the head of BP Migas, Kardaya
Warnika, Pertamina president Widya Purnama, representing PT
Pertamina EP Cepu, and Mobil Cepu president Steve Greenlee,
representating Mobil Cepu and Ampolex Cepu.

BP Migas also signed separate contracts with Pertamina for
142,170 square kilometers in its previous concessions, and with
its upstream exploration and production subsidiary, PT Pertamina
EP, for 138,610 square kilometers in these areas, in line with
the new oil and gas law, which gives back regulatory authority
from Pertamina to the government.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro,
who witnessed the signing, said he expected that the agreement
would boost Indonesia's declining oil production.

"We hope the Cepu block will add more than 150,000 barrels to
our daily oil production," he said.

"The agreement is also expected to provide further legal
certainty for investors in this country."

Despite the signing of the contract, Pertamina and ExxonMobil
still need to discuss the terms of their joint operating
agreement (JOA) on sharing the oil produced in the block.

"After this, Pertamina and Exxon will sit down together and
discuss the JOA," Widya said, without giving any timeline.
However, he said that Pertamina wanted to move ahead as soon as
possible.

The government is racing to increase the country's oil
production. A decline in production over recent years, coupled
with rising consumption and a recent surge in oil prices, is
putting Indonesia's fiscal sustainability on the line as its fuel
subsidy spending increases.

At present, the country's crude and condensate production
stands at slightly above one million barrels per day (bpd), down
from the 1.6 million bpd recorded in the mid 1990s.

The Cepu block, located on the border between Central Java and
East Java provinces, is expected to help stem a production
decline that has averaged more than 5 percent annually in the past
five years.

Pertamina had earlier signed an agreement on Sept. 10 agreeing
to a participating interest of 50 percent in the Cepu block,
equal to Exxon's. Both Pertamina and Exxon will then allocate 5
percent each to the relevant local administrations.

Previously, a memorandum of understanding (MOU) to develop the
Cepu block was signed on June 25 in the first concrete step
toward ending a four-year dispute between Pertamina and
ExxonMobil over the block.