Pertamina, ExxonMobil reach Cepu deal

The Jakarta Post ,  Jakarta   |  Tue, 03/14/2006 8:06 AM

The Jakarta Post, Jakarta

State oil and gas firm PT Pertamina and U.S. oil giant ExxonMobil Corp. announced Monday they had finally reached an agreement to jointly operate the Cepu oil block, ending a protracted four-year dispute.

Under the agreement, expected to be officially signed on Wednesday, Pertamina and ExxonMobil will form a joint-operating organization, to be known as Cepu Organization, that will run the oil-and-gas-rich block under a 30-year production-sharing contract with the government, they said in a press release.

The American company will be the general manager, the release said, a position which had been a major sticking point among the companies.

""The development of the Cepu block must be done as soon as possible for the sake of national interest,"" newly appointed president of Pertamina, Ari Soemarno, told reporters in a joint press conference.

He was appointed the company's CEO on March 8, replacing Widya Purnama, who steadfastly insisted Pertamina should be the operator of the US$2.6 billion project.

According to the press release, ExxonMobil will hold the posts of general manager, operating manager and deputy planning manager in the joint organization, while Pertamina will hold other key positions, including deputy general manager, deputy operating manager and planning manager.

A committee to be controlled by Exxon and Pertamina will oversee the organization, and has the authority to make and decide on operational plans, working programs and budgeting.

The standoff between Pertamina and ExxonMobil over the operatorship of Cepu has stalled the development of the country's biggest untapped oil field, which straddles the border of East Java and Central Java.

ExxonMobil and Pertamina each holds a 45 percent stake in the Cepu block, while the remainder is controlled by local governments in the two provinces.

""The negotiation has taken so long, almost five years. Our team has met about 31 times this year only,"" Ari said.

The timing of the decision had nothing to do with the arrival of U.S. Secretary of State Condoleezza Rice in Jakarta on Tuesday, he added.

Ari expected Cepu, which is estimated to have about 500 million barrels in oil reserves, will start producing crude oil in 2008, with daily output estimated to be about 165,000 barrels per day, or 20 percent of the country's total daily output.

President Susilo Bambang Yudhoyono had pressed for an end to the protracted Cepu dispute as the government strives to reverse a decline in the country's oil production.

Meanwhile, legislator Dradjad H. Wibowo of the National Mandate Party was opposed to ExxonMobil's appointment as general manager, saying Pertamina had equivalent technical capability.

He feared the management lineup, which he said favored ExxonMobil, could result in losses to national interests.

""There is always the possibility that Exxon may understate the block's (oil) production while overstating its (production) costs, without us having any authority whatsoever to cross-check this, leaving Pertamina with almost nothing left after the production sharing contract ends,"" said Drajdad.

He was skeptical of the effectiveness of even placing Pertamina officials in the management lineup to supervise the joint company.

""Pertamina's representatives will only receive official reports, when we need people down in the field to really monitor things,"" he said, citing the case at East Java's Sukowati oil field, in which a foreign oil company allegedly marked up its production costs.

""While I'm not sure of any political pressures at play here, I also think Pertamina's recent board of directors shakeup is to clear the way for ExxonMobil, which, by coincidence or not, happened prior to the visit of Condoleezza Rice."" (03)

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