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.