Pertamina, Exxon reach initial deal on Cepu

Pertamina, Exxon reach initial deal on Cepu

Fitri Wulandari, The Jakarta Post , Jakarta

State oil company Pertamina has reached a preliminary
agreement with U.S.-based ExxonMobil Oil on the extension of a
contract to operate the Cepu oil and gas block, a Pertamina
official said on Thursday.

Pertamina Upstream Director Bambang Nugroho said Pertamina and
ExxonMobil Oil Indonesia had negotiated that they would work
under a Special Working Contract.

Under the scheme, the government would receive 60 percent and
the remainder would go to Pertamina, which would split its share
with ExxonMobil.

However, Bambang declined to give details on ExxonMobil's
split.

"We have completed points in the head of agreement (HoA),
which is awaiting approval from the (Pertamina) board of
commissioners and the shareholders," Bambang told reporters after
a hearing with House of Representatives Commission VIII that
oversees energy affairs.

Bambang said the board of commissioner and shareholders would
give its approval on the split as well as the extension of
ExxonMobil's technical assistance contract (TAC) on the block,
which expires in 2010.

ExxonMobil declined to comment on the matter.

"ExxonMobil hopes to have an equitable agreement in the near
future, but we don't have an announcement at the moment,"
ExxonMobil spokeswoman Deva Rachman told The Jakarta Post.

Pertamina and ExxonMobil have been locked in a prolonged
dispute over the operation of the Cepu block located in the
border area between Central and East Java, which is estimated to
have two billion barrels of potential oil reserves of and 11
trillion cubic feet (TCF) of potential gas reserves.

In the early 1990s, Pertamina handed the block over to PT
Humpuss Patragas under a TAC. Humpuss is owned by Hutomo "Tommy"
Mandala Putra, the youngest son of former president Soeharto.

In 1999, Humpuss sold its entire stake in the block to
ExxonMobil Cepu. ExxonMobil asked for an extension of the current
TAC until 2030 after finding huge oil and gas reserves in the
area.

Pertamina has opposed the demand.

Under the current TAC, ExxonMobil is only obliged to provide
Pertamina with a Cepu block output equal in volume to that last
produced by the state company. At the time of the handover to
Humpuss, the block only produced a few thousands of barrels of
oil per day.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said he had received a report on the completion of the
negotiation and the split production scheme for the Cepu block.

However, he said the ministry was still studying the report.

"The split should be profitable for the state," Purnomo said.

While declining to give details on the contract, Bambang said
the agreement would provide Pertamina returns of up to 44 percent
of the net operation value.

As a partner to the scheme, Pertamina must share the
investment costs ExxonMobil has already put in the block.
ExxonMobil claimed to have spent US$400 million, but Pertamina
doubted the figure.

Bambang said an audit was in progress to ascertain the amount
of investment.