Cepu's new contract will be in the form of PSC

The government will change the U.S. energy giant ExxonMobil's existing technical assitance contract (TAC) with state oil and gas firm PT Pertamina on the Cepu oil and gas block into a production sharing contract (PSC).

"The Law on Oil and Gas has abolished the TAC system. We now only have PSC or operational cooperation (KSO) contract systems," director general of oil and gas Iin Arifin Takhayan told reporters on the sidelines of a House of Representatives meeting in Jakarta on Monday.

According to Iin, all contractors must change their contracts into PSC or KSO once their current TAC contracts expire. But he declined to comment on why Exxon's TAC must be changed to PSC now despite that the contract will only expire in 2010.

Meanwhile, Rizal Malarangeng, spokesman of the government's negotiation team of the Cepu block, said that the government would let state oil and gas Pertamina to negotiate with ExxonMobil on the portion of interest it would get in the block under the PSC system. However, the government estimated the participating interest would be at 45 percent.

"Negotiations are still going on. Based on (the government's) calculations, Pertamina will get around 45 percent, 45 percent for ExxonMobil and 10 percent for the region (Bojonegoro regency)," Rizal said in Jakarta on Monday.

The composition of shares will determine the each party's yield from the block.

However, state oil and gas company Pertamina's management earlier said they would not accept a 45 percent interest. Instead, they asked for a 70 percent interest.

This was conveyed by Pertamina's vice president Mustiko Saleh during a hearing with the House's Commission V11 last week.

Commenting on this, Rizal said: "They (Pertamina's board of directors) can ask for it (70 percent). But what if they don't get? After all it is negotiation." (dino)