Pertamina, Exxon to develop Cepu at end of year

Pertamina, Exxon to develop Cepu at end of year

The Jakarta Post, Jakarta

State oil and gas firm Pertamina said the company and U.S.
energy company ExxonMobil would start to jointly develop the Cepu
oil and gas block at the end of this year.

"ExxonMobil has agreed in principal to a partnership with
Pertamina. It has committed to commence (the partnership) this
year," Pertamina president Baihaki Hakim said as quoted by Antara
on Friday.

Baihaki said Pertamina expected the partnership to be a joint-
venture scheme where both parties would get an equal share. The
joint venture is expected to get 40 percent of Cepu's output,
while the remaining 60 percent will go to the government.

"Exxon has yet to officially respond to the offer. But there
are signs indicating that (the joint-venture scheme)," Baihaki
added.

ExxonMobil spokeswoman Deva Rachman could not be contacted for
confirmation.

The Cepu oil and gas block is located in the areas bordering
Central Java and East Java. The block is estimated to have
potential oil reserves of two billion barrels and 11 trillion
cubic feet (TCF) of potential gas reserves.

In 1999, the Cepu block was acquired from Pertamina by PT
Humpuss Patragas, a company owned by Hutomo Mandala Putra, the
youngest son of former president Soeharto, which operated it
under a technical assistance contract (TAC).

Humpuss then sold its 100 percent stake in the block to
ExxonMobil Cepu in 2000.

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.

Under the TAC contract, ExxonMobil Cepu is only obliged to
provide Pertamina with part of the Cepu block output at an amount
equal to the volume last produced by the state company.

Upon the finding of huge oil reserves in the Cepu block,
ExxonMobil asked for an extension of its contract until 2030. Its
TAC is due to expire in 2010.

Baihaki said the government board of commissioners (DKPP) for
Pertamina had agreed that Pertamina would be an active partner.
It means Pertamina will share equal responsibility to finance
exploration activities in the block.

However, Baihaki said a couple of issues remained to be
discussed.

One of the issues was the drilling costs proposed by
ExxonMobil, which Pertamina deemed higher than that estimated by
other companies.

"We hope for a regular deal," he asserted.

Another issue pertains to the amount of costs spent by
ExxonMobil last year. The firm claims that the costs reached
US$75 million.

Baihaki said the amount was too high considering there had
been no activities in the block last year.

Pertamina and a team from the Development Finance Comptroller
(BPKP) are set to head to the U.S. to look into the matter, he
said.

Meanwhile, Baihaki said Pertamina planned to begin oil and gas
exploration in Iraq next month, investing around $24 million in
the first three years.

Pertamina has an option to extend its exploration activities
by another two years with a further $16 million investment if it
fails to complete the work in the first three years, Baihaki said
as quoted by Dow Jones.

Iraq's former government awarded the Western Desert block,
which is estimated to have three million barrels of crude oil, to
Pertamina last year.

The U.S.-led military invasion of Iraq that toppled Saddam
Hussein delayed Pertamina's plan to start exploration in the
country in March.

Baihaki said Pertamina was also keen to explore for oil in the
Tuba Block, which is estimated to hold larger oil reserves than
the Western Desert Block.