Exxon signs tentative deal in RI

Exxon Mobil Corp. said it has reached a tentative agreement with the government of Indonesia on terms and conditions to tap huge reserves in the Cepu block, estimated by the government to hold more than 500 million barrels of oil, Reuters reported on Wednesday from New York.

In a statement late Tuesday, Exxon said its Indonesian subsidiaries have signed a memorandum of understanding with state oil company PT. Pertamina and the Indonesian government.

"The deal will be completed when the definitive agreements are concluded, anticipated during the third quarter of 2005," Exxon said.

Just last Friday Indonesia's chief negotiator said a deal was months away. Last Tuesday, Exxon Chief Executive Lee Raymond told the Reuters Energy Summit talks were moving toward a resolution but "you haven't resolved anything until you've resolved everything."

Pertamina decided last year not to extend a contract for Exxon for the Cepu block development after it expires in 2010, but the government ordered officials to work out a deal in an effort to improve Indonesia's investment image and boost flagging oil production.

Exxon and Pertamina will each have a 45 percent stake in the block, located on Indonesia's main island of Java, and the regional government will get 10 percent. Indonesian officials have said that Exxon agreed to a production split of 6.75 percent based on oil above $45 a barrel

The U.S. oil company said it has spent $450 million on the block, although there has been no commercial output so far.

Jakarta estimates the field could hold up to 500 million barrels of oil, which could produce a much-needed 100,000 barrel-per-day (bpd) boost for Indonesia, equivalent to about 10 percent of current output.

Indonesia's crude oil production fell to the lowest level in 34 years in May, 936,000 bpd from 953,000 bpd a month earlier, due to repairs on several wells, an industry source has said. Condensate output, exempt from OPEC quotas, rose to 121,700 bpd last month from 110,000 bpd in April.(*)