Pertamina hints at deadline for ExxonMobil

Pertamina hints at deadline for ExxonMobil

A'an Suryana
The Jakarta Post
Jakarta

State oil and gas company Pertamina stepped up pressure on
U.S.-based ExxonMobil Oil to split its ownership of giant oil
field Cepu by saying on Tuesday that it wanted a deal by
November.

Pertamina upstream director Iin Arifin Takhyan said that he
expected a memorandum of understanding to replace ExxonMobil's
expiring contract by Nov. 1.

"The date has been repeatedly delayed, so we have to sign a
final agreement by Nov. 1," Arifin said prior to a hearing with
the House of Representatives' Commission VIII for mines and
energy affairs.

He did not say what would happen if the deadline passed
without a deal, but a Pertamina official who declined to be named
said that the company would let President Megawati Soekarnoputri
decide.

Pertamina and American oil giant ExxonMobil have been at odds
over the conditions to allow the latter to extend its contract
over the Cepu oil blocks located in Central and East Java.

ExxonMobil is reportedly seeking another 20 years for its
contract, which expires in 2010, to allow it to fully exploit
Cepu's giant oil reserves it discovered about one and a half
years ago.

ExxonMobil claims the oil fields hold reserves of about 250
million barrels. But a recent study by the state oil and gas
research institution (Lemigas) showed that the actual oil reserve
was twice the amount at 500 million barrels of oil.

The discovery surprised Pertamina, which once owned Cepu
before it was coerced into selling its shares in 1990 to Humpuss
Patragas -- a company belonging to former president Soeharto's
youngest son Hutomo "Tommy" Mandala Putra. Cepu was later bought
out by ExxonMobil.

As ExxonMobil seeks a contract extension from the government,
Pertamina is targeting to reclaim a 50 percent stake in Cepu.

ExxonMobil operates Cepu under a Technical Assistance Contract
(TAC), normally reserved for small oil companies like Patragas.

Under this type of contract, ExxonMobil owns a 25 percent
stake while Pertamina owns 10 percent, leaving the rest for the
government.

Pertamina's bid to halve ExxonMobil's ownership of Cepu would
end with both companies owning a 17.5 percent stake each.

ExxonMobil has offered a 16.25 percent share, but after 2010.

Upstream director Arifin said that talks also stalled on the
amount of compensation Pertamina should receive from ExxonMobil,
which the latter agreed to pay.

By not giving ExxonMobil a new contract would pave the way for
Pertamina to again fully own the Cepu block after 2010.

But reports of lobbying from ExxonMobil's side may still cloud
Pertamina's prospects at Cepu, with one source saying that State
Intelligent Body (BIN) approached Pertamina to ease its pressure
on ExxonMobil.

Extending the contract would spur Indonesia's battered
investment climate, however, it would be at the expense of
Pertamina.

For now the decision on whether it will extend ExxonMobil's
contract rests with Pertamina's board of commissioners. The board
is chaired by Minister of Energy and Mineral Resources Purnomo
Yusgiantoro and its members, who include Coordinating Minister
for the Economy Dorodjatun Kuntjoro-Jakti and Minister of Finance
Boediono.

The board, however, will pass the decision on to President
Megawati if no the deal is reached by the November deadline, the
Pertamina source said.