Pertamina-ExxonMobil bargain offers respite for government
Leony Aurora, The Jakarta Post, Jakarta
Indonesia has a lot of reasons to smile after the in-principal agreement recently reached between state oil firm Pertamina and U.S. energy giant ExxonMobil on the development of the oil-rich Cepu block.
As the war drums of Pertamina and Exxon have stopped beating after years of wrangling, there is hope that the block, which is estimated to have the capacity to produce 170,000 barrels per day at its peak, will be developed speedily and help boost oil production significantly in the near future.
The agreement is a fine reward for a country whose oil output has been declining by about 5 percent annually as aging fields are becoming depleted.
Not only that, the deal also hands a bigger portion of oil output, thus higher revenue, to the state, prompting an analyst and a senior lawmaker to call the deal a "of maximum benefit for the country".
The higher revenue would be good for a government struggling to keep its balance sheet in check. For this year alone, the cash-strapped government struggles to plug the budget deficit as fuel subsidy spending jumped to a whooping Rp 76.5 trillion from Rp 19 trillion previously set.
The soaring global oil prices -- tipping a record high of US$60 a barrel twice in the past week -- only made it even harder for Pertamina, tasked by the government to secure domestic fuel, to do its job. Long queues are often seen at gas stations as Pertamina does not have the funds to import more fuel.
Against this backdrop, the deal, which put an end to a four- year dispute, has been welcomed.
Chairman of House Commission VII overseeing energy and mining, Agusman Effendi said that the deal used a new innovation by introducing varying splits depending on oil prices.
"I think (the result) is the best that we could have," said Agusman over the weekend.
An energy expert Kurtubi hailed the deal, saying that not only would the government receive a bigger share of oil than stipulated in the current contract, it would also see a quicker surge of output from the untapped oil-rich block.
"(Oil production) will begin faster than if Pertamina had to wait until the (current) contract expires in 2010 and look for a new partner afterwards," he said.
"With the additional output, we can lower imports and save our foreign reserves," he added.
Pertamina and Exxon announced last Friday that they had agreed to hold participating interests of 45 percent each for the Cepu block. The local administration, as stipulated by the law, gets the remaining 10 percent.
The production splits between the contractors and the government will range between 85 percent and 70 percent, depending if the oil price averages over US$45 per barrel or below $35 a barrel in any given year.
Thus, Exxon's oil slice will range between 6.75 percent and 13.5 percent of the total output, while Indonesia -- counting in Pertamina and the local administration's cut -- will take in between 86.5 percent and 93.25 percent.
Exxon had previously sought to get 20 percent of the oil output after 2010, when its contract should have expired.
Kurtubi said that the deal gave out a positive signal to investors and reflected the country's willingness to provide a good climate for investment.
"We could have just kicked Exxon out and let Pertamina work the block," he said.
Both noted that the next step was to make sure that the costs to develop the block, which would be recovered from the oil output, were verified properly.
"We have to audit the costs that have been spent before (the agreement)," said Agusman.
Kurtubi said that Indonesia would be in a better position to monitor expenses as Pertamina and the local administration would have 55 percent participating interests in total, or a majority in the contract.