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.