Pertamina may go it alone in Cepu block

Pertamina may go it alone in Cepu block

Agencies, Jakarta

State oil and gas firm PT Pertamina is likely to drill operations
in Cepu block bordering Central Java and East Java in January
without the participation of U.S. oil giant ExxonMobil Corp., the
company's top executive said.

A deadlock with Exxon over Cepu's joint operatorship contract
has prompted Pertamina to seek permission from the Upstream Oil
and Gas Regulatory Body (BP Migas) to proceed without Exxon's
input, Pertamina's Chief Executive Officer Widya Purnama told
reporters on Friday.

"Because our meetings with Exxon are always deadlocked... we
will deliver a plan of development to BP Migas and if agreed, we
will likely start to drill 30 wells (in Cepu)," he was quoted as
saying by Dow Jones.

Pertamina will submit the plan to BP Migas in December, he
said, without further elaboration.

Widya said a Cepu operating agreement with Exxon remains
stalled on the U.S. firm's insistence that it be Cepu's sole
operator for the entirety of the block's 30-year contract.
Pertamina, on the other hand, wants to operate the Cepu block for
the first five years of the contract.

Pertamina is considering referring its dispute with Exxon
Mobil to independent arbitration, he added, but didn't elaborate.

"We are ready to fight," he said of Pertamina's intention to
seek potential outside legal remedies to its contractual
wrangling with the U.S. company.

"Exxon is currently engaged in the completion of a joint
operation agreement with Pertamina. We remain hopeful that the
discussion can be resolved as soon as possible," Deva Rachman,
spokeswoman at Exxon's Indonesian unit, said as quoted by
Bloomberg.

The country would benefit from such an agreement, she said,
"because with the current price of crude oil, the government will
get 80 percent of Cepu's production."

Development of the Cepu field, estimated to contain 500
million barrels of oil, has been stalled for four years because
of the dispute.

Pertamina may need as much as US$100 million to drill 30 wells
at Cepu, Pertamina's vice president Mustiko Saleh said. Pertamina
will use its own cash to fund the drilling and is in talks with
banks for further financing if needed.

"It's not a big amount," he was quoted by Bloomberg as saying.
"In our proposal, Pertamina's cost to drill one well is about a
third of the cost proposed by Exxon."

Pertamina is in talks with Merrill Lynch & Co, JP Morgan Chase
& Co, Goldman Sachs Group Inc., and PT Bank Mandiri to arrange
financing for Cepu's development that is estimated to cost about
$1.5 billion for the first three years, Mustiko said. The company
will invite bids from banks and financial institutions in the
second quarter of 2006 if it's allowed to start drilling in Cepu
in February, he said.

Under the June agreement, Exxon, Pertamina and the local
administrations would be awarded a so-called production sharing
contract with as much as 30 percent of the field's revenue if oil
prices drop below $35 a barrel and as little as 15 percent if
prices rise above $45. The balance of the revenue would go to the
government.

Indonesia's crude oil and condensate output edged up to 1.062
million barrels per day (bpd) in October from 1.053 million bpd
in September, but remained below the government's 2005 target of
1.075 million bpd.