Pertamina threatens to take over Arun operation

Pertamina threatens to take over Arun operation

JAKARTA (JP): State oil and gas company Pertamina warned on
Friday that it would take over the operations of the Arun gas
fields in Aceh owned by American energy firm ExxonMobil Oil
Indonesia Inc, unless the company resumed its operations in one
week.

"I gave them an ultimatum," said Pertamina president Baihaki
Hakim after a signing ceremony for the development of an oil
refinery in East Java.

He said he had asked ExxonMobil's officials to start repairing
all broken pipelines in the fields in one week as the first step
to resuming normal operations.

"What do you need for this? One battalion of soldiers? I will
ask the military to provide that for you," Baihaki added.

ExxonMobil had suspended its operations at the Arun gas fields
since March due to security harassments from armed groups,
believed to be local rebel forces.

The decision prompted the nearby Arun liquefied natural gas
(LNG) plant to stop its operations, cutting the LNG supply to
Japan and South Korea.

So far, Pertamina had been able to cover the shortage with the
excess LNG from its Bontang LNG plant in East Kalimantan.

Around 10 percent of the gas from Arun was also utilized by
fertilizer producer PT Pupuk Iskandar Muda, PT Asean Aceh
Fertilizer and pulp firm PT Kertas Kraft Aceh. Operations of
these companies remain halted because of the gas shortage.

Baihaki said three months of waiting was enough.

"Let's give Exxon a chance first.....but if there is no
concrete action in the next one or two weeks, I'll lose my
patience," he said.

He said demand for Arun's LNG would increase in July, and that
the Bontang plant would not be able to cope with the demand.

According to its contract with LNG buyers, Pertamina must
supply 10 shipments of LNG worth some US$100 million each month
from the Arun gas plants.

However, recent demands for Arun's LNG from both Japanese and
Korean buyers had dropped to six to seven shipments, or equal to
Bontang's current excess LNG capacity.

After July, Pertamina must seek LNG from other gas producers
to help its clients meet their gas demand.

"If we delay the supply, we will lose our buyers....we don't
have a choice (but to force ExxonMobil)," he added.

ExxonMobil officials were not available for comment.

He said a team from ExxonMobil comprising eight people were
preparing to go to Arun this week. Baihaki refused to reveal the
date of the team's departure for security reasons.

Pertamina and the government are considering what action they
will take should ExxonMobil miss the deadline, he went on.

One viable option, Baihaki said, was to take over Arun's
operations temporarily until security conditions returned to
normal.

"A contract is renegotiable, it's not sacred. If you cannot
deliver, let's sit down and talk," he said when asked about the
legal consequence of Pertamina's plan to take over ExxonMobil's
operation.

He assured that Pertamina would not take a unilateral action
against ExxonMobil, and that the two companies always consulted
each other.

Earlier, Baihaki said local Acehnese businessmen had proposed
to him to let local workers take over some of the maintenance
work during the absence of ExxonMobil.

He said the proposal could overcome the security problem, but
as it was unclear who was fighting whom in Aceh, he had yet to
consider the proposal.

ExxonMobil officials insisted they would stay away from Arun
until they were assured of the area's safety.

Since ExxonMobil pulled out of Arun, the military has beefed
up security around the company's gas facilities.

However, attacks against the facilities remain frequent, with
reports of fighting continuing until last month.

The military is accusing the Free Aceh Movement (GAM) of
attacking its personnel at Arun.

ExxonMobil said it would assess the security condition through
on-site studies, air surveillances and military reports. (bkm)