Govt opposes Pertamina's requests over Cepu

The Jakarta Post, Jakarta

State oil and gas company PT Pertamina's requests to replace ExxonMobil as the operator of the as-yet untapped oil-rich Cepu block, and for a bigger split of the output has met strong opposition from the government -- the company's sole shareholder.

Spokesman for the government's negotiating team on Cepu, Rizal Mallarangeng, said on Tuesday the company should respect the sanctity of the memorandum of understanding (MOU) signed between Exxon and the negotiating team in June.

"Besides, the decision (in the MOU) was consulted in the recent shareholders meeting and that should be respected by the directors."

The firm's president director Widya Purnama said on Monday that the company would hold 55 percent of the voting rights -- comprising 45 percent of its participating interest and 10 percent of the shares given to local administrations -- due to its exclusive right as a state company.

Widya also said Pertamina requested a contractor's split of 40 percent of oil produced in Cepu.

Under the signed MOU, stakeholders -- Pertamina, Exxon and local regency administrations -- will get 15 percent of all output and the government 85 percent if oil prices averaged over US$45 in a year.

If the price of oil falls below $35 it would be a 30-70 split.

Law No. 8/1971 on the state oil and gas company stipulates that Pertamina and the government would comply with such a split.

The previous law, however, became obsolete with the enactment of Law No. 22/2001 on oil and gas, which stipulates that Pertamina's contracts will maintain the terms applied until such time as they expire.

The MOU to develop the Cepu block, located on the border of East Java and Central Java, was signed on June 25 and ended a four-year dispute between Pertamina, which was represented by the government team throughout the negotiation, and the U.S.-based oil giant.

The production sharing contract to develop the block will be signed by the government and a joint venture composed of subsidiaries of ExxonMobil and Pertamina, later to be called Pertamina Cepu.

Cepu is expected to produce 170,000 barrels of crude oil per day when it reaches peak production, about 18 percent of Indonesia's current output.