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.