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.