Thu, 18 Dec 2003

Pertamina threatens to go it alone in Cepu block

Fitri Wulandari, The Jakarta Post, Jakarta

State-owned oil and gas firm PT Pertamina officials said they would be fully prepared to run the Cepu oil and gas block in Central Java by themselves if negotiations with U.S. energy giant ExxonMobil failed.

Pertamina president Ariffi Nawawi said the company was ready to take over the Cepu block. However, they would wait until ExxonMobil's technical assistance contract (TAC) in operating the block expires in 2010.

"The block will not be at full production until 2014 because it will take three to four years for Pertamina to develop it," Ariffi told reporters after a hearing with the House of Representatives Commission VIII on mining and energy.

Pertamina and ExxonMobil has been engaged in a lengthy dispute over the operation of the Cepu block, which is estimated to have potential oil reserves of two billion barrels and 11 trillion cubic feet (TCF) of potential gas reserves.

Pertamina divested the block in 1999 to PT Humpuss Patragas, a company owned by Hutomo Mandala Putra, the youngest son of former president Soeharto. With that transaction, Humpuss operated the block under a TAC with Pertamina.

But Humpuss then sold its 100 percent stake in the block to ExxonMobil Cepu in 2000. The latter then asked for an extension of the current TAC until 2030 after it found huge oil and gas reserves in the area.

Pertamina has opposed the demand.

Under the current TAC, ExxonMobil 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 (in 1999, when the potential huge reserves has not been discovered).

"Negotiations with ExxonMobil are continuing, and there has been agreement in some areas. We expect to complete negotiations by next month," Ariffi said.

One option is by using Pertamina's joint-venture model where Pertamina would determine ExxonMobil's share on a production sharing contract, Ariffi said.

On the issue related to the amount of expenses incurred by ExxonMobil on the block last year, which were protested by Pertamina, Ariffi said both companies had agreed to continue the auditing process.

Pertamina refused to accept claims by ExxonMobil that it had spent US$400 million for investment in the block.

Pertamina said that according to a temporary audit by the State Financial and Development Controller (BPKP), the investment expense should have only been around $140 million.