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.