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S oil and gas giant ExxonMobil will soon develop gas reserves in the Cepu block and will sell the gas to domestic buyers, the company told reporters Wednesday.

Maman Budiman, ExxonMobil's spokesman for its Indonesia operation, said that Exxon had signed an MoU to supply gas from the block to state power utility PLN and state gas distributor PT Perusahaan Gas Negara (PGN).

"The MoU was signed last year. PLN will use the gas for its power plants and PGN for the city gas project," Maman said after a hearing with the House of Representatives Commission VII overseeing energy and mineral resources.

The gas will be produced from the Jambaran field, one of the oil and gas fields within the block. Maman said the field had estimated gas reserves of about 1.3 trillion cubic feet (TCF) and all the output would be allocated to the state-owned enterprises. He added that the details of volume and price would be discussed further with the buyers.

"We are still in talks on the most efficient concept for the development," Maman said.

Exxon has been engaged in gas development in Indonesia for quite a long time. The company operates the PT Arun LNG plant which was the first LNG plant in Indonesia. The Arun LNG plant processes natural gas from Exxon's Arun field in North Aceh.

Maman said the gas output from the Arun field would drop from 308 million cubic feet per day (MMcfd) in 2009 to 278 MMcfd this year. "It's a natural decline," Maman said.

In the Cepu block, Exxon through its subsidiary Mobil Cepu Ltd (MCL) holds a 45 percent participating interest in the block. State oil and gas company PT Pertamina holds another 45 percent participating interest and the remaining 10 percent is held by a consortium of enterprises controlled by the provincial administrations of East and Central Java.

Indonesia has placed high hopes in the Cepu block to counter the country's overall declining oil production. The government has expected the block to start contributing 20,000 barrels oil per day (bpd) to the country's total oil production since the end of 2008. But as of today the company has been unable to achieve this target.

Maman claimed that MCL is actually able to meet the production target, but the downstream facilities to process and deliver the oil are managed by other companies which are not yet ready to receive the crude. "We can actually produce up to 25,000 bpd, but the receiving facilities are still unable to receive all the output," he said.

Upstream oil and gas regulator BPMigas's chairman R. Priyono confirmed that the receiving facilities still had less than the required capacity. Crude from the block is supplied to refineries operated by PT Tri Wahana Universal (TWU) and Pertamina.