Exxon battles for operatorship of giant oilfield

Exxon Mobil insisted Wednesday it is the rightful operator of Indonesia's US$2 billion Cepu oil development after the government in Jakarta threatened to take over the field because of a row with state oil firm Pertamina, Reuters reported.

Chief Economics Minister Aburizal Bakrie had said the government could wrest Cepu from Exxon and Pertamina if they failed to resolve a dispute by year's end over who operates the OPEC member's biggest oil find in decades.

The threat casts a pall over one of Exxon's 10 biggest undeveloped oil finds and Indonesia's attempts to stem declining output. Cepu could produce up to 180,000 barrels per day, lifting Indonesian production by 20 percent.

"Based on the [memorandum of understanding], we are the operator," said Exxon spokeswoman in Jakarta, Deva Rachman, referring to an accord signed with Pertamina before final agreement on key issues such as the production split and share interests was reached in September.

She said Exxon - the world's biggest public oil company, which pumps nearly 2.6 million bpd of oil, nearly three times that of Indonesia - was still talking with Pertamina.

Pertamina chief Widya Purnama has insisted the firm take the lead in Cepu, located on Java island.

Some senior officials said weeks ago that the government planned to replace him to help finish the deal, but this has not happened. "It is possible this could be a bluff from the government to push both parties to come to the negotiation table more seriously," said Citibank economist Anton Gunawan.

"There's a greater national interest behind this dispute. We need the oil badly to jack up production, so the government has a big stake to solve this problem as quickly as possible."

Fauzi Ichsan, an economist at Standard Chartered, said the government would need strong legal foundations to take over Cepu, which Jakarta estimates could hold more than 500 million barrels of recoverable oil - about 5.5 percent of the nation's total.

Pertamina has said it wanted the role of operator to be rotated among the two entities but says Exxon rejects this.

Kurtubi, an oil analyst at the Center for Petroleum and Energy Economics Studies, said: "If the government wants to force its policy in the Cepu field, then the government should use its power through Pertamina and not simply say they want to take it over."

The row is holding up followthrough on the September deal, which was for Pertamina and Exxon to develop the block for 30 years.

Pertamina and Exxon hold equal 45 percent stakes in Cepu. The other 10 percent is with the regional government.

The government has projected Cepu would begin production in 2008 after an estimated US$2 billion in investment, but that date may be pushed back if negotiations drag on.(*)