New contract to solve Cepu dispute proposed

The Jakarta Post, Jakarta

State oil and gas firm Pertamina said it had offered a special contract scheme to giant oil firm Exxonmobil oil in a bid to settle a protracted dispute over the contract in the Cepu oil block in Central and East Java.

Pertamina's director Baihaki Hakim said the contract was a special working contract similar to a split revenue contract applied by the government with other oil production sharing contractors.

Baihaki did not provide details of the contract proposal nor the percentage split for both companies. However, he said the scheme had been approved by the government and upstream authority BP Migas.

"We have sent the split revenue plan to the firm (ExxonMobil) and are now waiting for their response," Baihaki told reporters on Wednesday as quoted by Antara.

Meanwhile, ExxonMobil could not be reached for comment.

ExxonMobil operates the Cepu block under a technical assistance contract (TAC). TAC is an agreement between Pertamina and an oil and gas investor, allowing the latter to work in Pertamina's working area to rehabilitate the existing wells or fields.

The dispute between Pertamina and ExxonMobil broke out several years ago when the latter sought to extend the contract on the block, while Pertamina wanted to take over the block.

ExxonMobil has been seeking an extension for another 20 years for its contract, which expires in 2010, to allow it to fully exploit Cepu's huge oil reserves it discovered about one and a half years ago. The firm took over control of the block from Humpuss Patragas, which was controlled by former president Soeharto's son Hutomo "Tommy" Mandala Putra, in 1999.

ExxonMobil claims the oil fields hold reserves of about 250 million barrels. But another study points to higher reserves.

Pertamina insisted on taking over the block after 2010, claiming that it was "coerced" into selling its shares to Humpuss in 1990, when Tommy's father was still president.

Last year, Pertamina proposed to set up a joint venture with ExxonMobil to develop the block, but no agreement was reached on the share proportion in the joint venture.