Pertamina's move over Cepu block sparks debate
Pertamina's move over Cepu block sparks debate
Johannes Simbolon, The Jakarta Post/Jakarta
State oil and gas company Pertamina's decision to operate the
Cepu block on its own rather than as a joint venture with
American energy giant ExxonMobil has raised questions about
whether the move is in the best interest of the nation.
Irwan Prayitno, head of House of Representatives Commission
VIII for energy, mining and environmental affairs, said the
commission fully backed Pertamina's move, "for the sake of
national interests".
"We need to help Pertamina, our state firm, boost its
performance. We can do that by allowing Pertamina to operate the
block by itself," he told The Jakarta Post.
A senior official at oil and gas upstream authority BP Migas,
however, said Pertamina's decision was in conflict with national
interests.
While Pertamina may expect greater benefits by operating the
block by itself, the firm's decision has seriously undermined the
nation's current efforts to lure foreign investors, and thus has
harmed national interests in general, the official said.
"At a glance, the decision by Pertamina's board of directors
not to extend ExxonMobil's contract looks right. But the decision
was apparently driven by nationalism and patriotism, and taken at
the time when the nation is preparing for the second round of the
presidential election," the official, who asked not to be
identified, told the Post.
Pertamina announced the decision during a hearing with the
House on Tuesday. A spokesperson for ExxonMobil Oil Indonesia
(EMOI) confirmed on Friday that Pertamina had notified the firm
about its decision.
The block, located in Central and East Java, was considered
"marginal" for decades given its small production output. In the
early 1990s, under a technical assistance contract (TAC),
Pertamina gave its operating rights over the block to a company
owned by Hutomo Mandala Putra, the youngest son of former
president Soeharto, which failed to find significant resources
there. ExxonMobil took over the operating rights of the block in
1999.
ExxonMobil announced in 2001 the discovery of significant oil
and gas resources in the area. It discovered 600 million barrels
of oil and between 700 billion and 1.25 trillion cubic of feet of
gas from the drilling of eight wells. Experts believe the amount
of the reserves will be much larger once the exploration of the
area is completed.
EMOI wants to extend its contract, which expires in 2010, for
another 20 years to ensure a return on its investment. After
three years of negotiations, EMOI and the former management of
Pertamina agreed in June to sign a preliminary agreement for a
joint venture to operate the block.
Pertamina's board of commissioners, led by State Minister for
State Enterprises Laksamana Sukardi, apparently disapproved of
the agreement. Two weeks ago, the government appointed a new
management for Pertamina, led by Widya Purnama, whose first major
decision was to announce that ExxonMobil's contract over the Cepu
block would not be extended.
The BP Migas official said that under the Oil and Gas Law of
2002, all TACs should be converted into production sharing
contracts that will be managed by BP Migas. The Cepu block should
thus be returned to the government once EMOI's contract over the
block expires in 2010.
"Is there a guarantee that Pertamina will be appointed by the
government to operate the block?" he asked.
He also said that following Pertamina's decision, the
government had lost the chance to receive $2 million per day (at
an oil price of $21 per barrel) from the block. EMOI planned to
produce 164,000 barrels of oil per day from the block.
The official's main concern is the impact of Pertamina's
decision on the nation's investment climate, and potential
lawsuits filed by EMOI against Pertamina.
"The decision has expanded the list of the government's
inconsistencies toward business deals with multinational
companies, and this risks economic and political intervention by
the U.S. government," he said.