Controversy over extension of the Cepu oil block?s contract grows

The controversy over the extension of ExxonMobil Indonesia?s contract in managing and operating the Cepu oil block is heating up with more analysts commenting on the topic after State Minister of National Planning/Chairman of the National Development Planning Board Kwik Kian Gie surprisingly opposes the planned extension of the contract.

Noted oil and gas analyst Kurtubi said in Jakarta on Wednesday that the future operation of the Cepu oil block which has proven oil reserves of 700 million barrels should be given to state owned oil and gas company Pertamina so that the government will be able to fully benefit from the rich oil reserves in the oil block.

If ExxonMobil is given another 20 year to operate the oil block, most of the benefits from the oil block will go to the oil giant, he said. "With average oil price of US$20 per barrel, the oil deposit in the oil block could generate about US$7 billion," he told Koran Tempo daily.

Kwik said earlier that he opposed the extension of ExxonMobil?s contract in the Cepu oil block to enable the people to fully benefit from the rich oil reserves. But he acknowledged that he could not do nothing to stop the extension of the contract because the board of commissioners of Pertamina, who mostly preferred to extend ExxonMobil?s existing contract, had chosen a voting process in determining whether or not the oil giant was allowed to get another 20 year in operating the oil block.

Meanwhile Pertamina?s director for upstream operation, Arifin Takhyan told Neraca daily that the Indonesian government would economically receive much more benefit if ExxonMobil was given another 20 year to operate and manage the Cepu oil block on the condition that the oil giant agreed to meet Pertamina?s demand.

"If Pertamina is assigned to handle the job, the benefit we can receive from the Cepu oil block?s operation might be minimal rather than if the oil block is operated by ExxonMobil," he said.

Pertamina has also said that it would reject the extension of the contract unless the company is given an extra cash and higher interest in the lucrative oil block as the compensation for the early extension of the contract which according to the existing agreement will expire until 2010.

Under the existing technical assistance contract, the government has a 65 percent interest in the Cepu oil block, Pertamina (10 percent) and Exxon (25 percent).

Pertamina was reported to demand at least 17.5 percent interest. This will reduce Exxon?s interest to 17.5 percent. The government?s ownership would to be maintained at the current level of 65 percent.

The Cepu oil block, which was taken over by ExxonMobil?s subsidiary Mobil Cepu Ltd from a company owned by former president Soeharto?s youngest son Hutomo Mandala Putra alias Tomy, is expected to start operation by 2003, with capacity of 50,000 barrels per day. The production would be increased to 200,000 barrels per day. Exxon said that the operation of the oil block is not economically viable unless the company is given assurance to operate the oil block for another 20 years. (voccess)