Pertamina won't extend ExxonMobil's Cepu contract

Pertamina won't extend ExxonMobil's Cepu contract

Fitri Wulandari, The Jakarta Post, Jakarta

State-owned oil and gas company Pertamina said on Wednesday it
would not extend the contract of ExxonMobil Oil to manage the
lucrative Cepu oil fields when it expires in 2010.

But Pertamina upstream deputy director Eteng A. Salam said the
company was proposing other forms of cooperation with the U.S.
oil and gas giant, including a possible joint venture.

"Pertamina will not extend the contract with Exxon after it
ends in 2010. However, we are still keeping open business
opportunities for ExxonMobil," Eteng said.

According to reports, ExxonMobil hoped to extend its technical
assistance contract (TAC) over the Cepu oil block, which is
located in Central and East Java, until 2030 after it discovered
reserves in excess of 250 million barrels of oil in the block
last year.

But Pertamina demanded tougher terms for the extension of the
contract after the government's oil and gas research institution
Lemigas found the Cepu oil block had oil reserves of about 500
million barrels, much higher than the volume claimed by
ExxonMobil.

Among Pertamina's demands were cash bonuses and a greater
share in the oil block.

Eteng did not say whether Pertamina's decision not to extend
the contract was caused by a failure to secure these demands.

He would only say the decision was made because Pertamina
wanted a more profitable scheme in the management of the Cepu oil
block.

Pertamina spokesman Ridwan Nyak Baik said the company had
reported its decision to the board of commissioners, and the
final decision would be made by President Megawati Soekarnoputri.

In mid-August, ExxonMobil president H.J. Longwell met with
Megawati to lobby for the extension of the Cepu oil block
contract.

Ridwan said that Pertamina was currently in talks with
ExxonMobil on other forms of business cooperation in managing the
Cepu oil fields after the contract ends.

The Cepu block was acquired from Pertamina by PT Humpuss
Patragas, a company owned by Hutomo Mandala Putra, the youngest
son of former president Soeharto, in 1999. Humpuss sold a 100
percent interest in the block to Mobil Cepu, a unit of
ExxonMobil, in 2000.

Prior to the acquisition by Humpuss, Pertamina was only able
to produce a very small volume of oil from the Cepu block, which
some officials considered at the time to be a marginal field.

But Pertamina now claims that Humpuss acquired the block in a
hostile takeover.

A TAC is an agreement between Pertamina and an oil and gas
investor, allowing the investor to rehabilitate existing wells or
fields owned by Pertamina.

Under its TAC, Mobil Cepu is obliged only to provide Pertamina
with part of the Cepu block's output at an amount equal to the
volume last produced by the state-owned company.

Meanwhile, Pertamina reported that from January to August
2002, the company maintained oil production at 101,000 barrels
per day and gas production at 97 million standard cubic feet per
day. As for geothermal steam, Pertamina produced 127,020 tons per
day.

Regarding its international investments, Pertamina is
developing overseas exploration activities. Pertamina plans to
invest US$64.2 million for exploration in Iraq, Vietnam and
Malaysia.