ExxonMobil?s Natuna contract does not make sense: Yusuf Kalla

Vice President Yusuf Kalla launched on Friday criticism against the contract held by American energy giant ExxonMobil Corp. over the Natuna D-Alpha block in South China Sea, saying the terms of the contract that give the government no share in the gas production of the block is thoroughly unacceptable.

?Under the contract, we get zero percent of share (in the gas output of the block). Those who drafted (the contract) were not making any sense. I wonder who negotiated the contract,? Yusuf was quoted by Kompas as saying.

ExxonMobil has said it is ready to renegotiate the contract after the government has repeatedly insisted that the contract has officially expired.

The government has appointed the head of oil and gas upstream authority BP Migas, Kardaya Warnika, under supervision of Minister of Energy and Mineral Resources Purnomo Yusgiantoro to renegotiate the contract. Exxon has reportedly named Steven Greenlee as its chief negotiator.

Kardaya has promised to conclude the negotiation in January next year.

Under the standard production sharing contract (PSC), the government takes 70 percent of gas produced by contractors with the contractor keeping the remaining 30 percent. In some cases, the government is willing to give up to the 55 percent of the output to contractors if the concession is located in frontier areas or contractors face a lot of risks or difficulties in producing gas.

Under the PSC, the government?s share includes royalty and taxes.

The Natuna D-Alpha block is said to hold around 222 trillion cubic feet (TCF) of gas, of which 46 TCF is thought to be commercially recoverable, but the exploitation of the gas reserves will pose a lot of challenges to and cost ExxonMobil dearly since the gas contains about 70 percent carbon dioxide.

When asked if the govenrment would ask for 65 percent share in the new contract with ExxonMobil, Yusuf refused to specify.

"The negotiation would not no longer be interesting, had we unveiled (the terms demanded by the government). We'd better negotiate first," Yusuf said.

Meanwhile, Kompas said President Susilo Bambang Yudhoyono visited the Natuna block on Friday prior to his departure to Hanoi to attend the APEC meeting, where he is expected to also meet U.S. President Goerge Bush. There is a speculation that the Natuna block is among the topics that will be discussed by both presidents. (*)