Pertamina, Exxon close to sealing Cepu deal

Pertamina, Exxon close to sealing Cepu deal

Agencies, Jakarta

President Susilo Bambang Yudhoyono has instructed state oil and gas firm PT Pertamina and U.S. oil giant ExxonMobil Corp. to jointly operate the Cepu oil and gas block, Pertamina president Widya Purnama said on Monday.

"The deal for a joint operation agreement with ExxonMobil for Cepu will be definitely completed this month," Widya was quoted by AFP as saying. "The President (Susilo Bambang Yudhoyono) has instructed joint operatorship for Cepu, meaning ExxonMobil must share with Pertamina."

ExxonMobil Indonesia spokeswoman Deva Rachman confirmed that the two sides were making progress toward a final deal on Cepu.

"We are currently finalizing the joint-operating agreement, and we hope we can finalize it as soon as possible with Pertamina," she told Dow Jones Newswires.

Widya's comments mark a reversal from more inflammatory comments that he made last month suggesting that the Cepu talks with ExxonMobil had deadlocked and that Pertamina was willing to go it alone in tapping the massive block.

The two sides signed a production-sharing contract in September for Cepu, which contains estimated reserves of 500 million barrels of crude oil.

Vice President Jusuf Kalla warned last week that the government would intervene if no outcome was reached on Cepu, Indonesia's biggest oil discovery in decades, by the end of December.

Located in East and Central Java, the block is expected to start producing oil in 2008 with estimated output of between 160,000 barrels per day (bpd) and 180,000 bpd.

However, the successful conclusion of a joint-operating agreement remains elusive.

Pertamina has blamed the stalled agreement on the U.S. oil giant's insistence that it be Cepu's sole operator for the entirety of the block's 30-year contract.

Pertamina, on the other hand, wants to operate the Cepu block for the first five years of the contract.

In June, the government agreed to award Pertamina and ExxonMobil a 30-year contract under which each would receive a 45 percent interest in the block. The remaining 10 percent stake was allotted to a third contractor representing the local government where Cepu is located.

Widya said last month that Pertamina would start Cepu drilling operations in January without ExxonMobil's participation and threatened to take the dispute to independent arbitration.

That rhetoric has puzzled analysts, who say that Indonesia desperately needs successful foreign investment in the oil sector to boost dwindling output to meet an official target of 1.3 million barrels per day (bpd) by 2009.

Indonesia's crude oil and condensate output edged up to 1.062 million bpd in October from 1.053 million bpd in September, but remained below the government's 2005 target of 1.075 million bpd.

Falling levels of investment in the sector will make Indonesia, Southeast Asia's sole member of the Organization of Petroleum Exporting Countries, a net oil importer in 2005, Coordinating Minister for the Economy Aburizal Bakrie said in July.