ExxonMobil to pay $125 million to Pertamina on Cepu block

US oil giant ExxonMobil Corp. finally agreed to pay US$125 million to state oil and gas company PT. Pertamina in exchange of contract extension and 50 percent right on Cepu giant oil and gas, a source close to the deal said Thursday.

The source said Pertamina and ExxonMobil will form a joint venture company to manage the block, and the development of the block?s giant oil reserves will commence this year, to allow the block to commence production in 2006.

Last week, Pertamina president Ariffi Nawawi admitted that agreement with ExxonMobil on compensation payment had been reached, but he refused to reveal the number. ?The agreement is subject to the approval of (Pertamina?s) shareholders,? he said on the sidelines of a seminar on gas in Jakarta last week.

The Cepu block, located in the border areas of Central and East Java provinces, was originally owned by Pertamina. Under the administration of former President Soeharto, it was pressured to hand over the block to a company owned by Soeharto?s son Hutomo Mandala Putra. ExxonMobil later bought out the block from Hutomo.

ExxonMobil has said that it has found oil reserves of above 250 million barrels and gas reserves amounting to 6 trillion cubic feet in the block. But, Pertamina believes the block contains larger reserves.

ExxonMobil sought to extend the contract on the block, which expires in 2010, for another 20 years. However, Pertamina demanded a 50 percent stake in the block and a cash compensation amounting to $400 million for the contract extension.

In the previous negotiations, ExxonMobil voiced agreement to set up a 50-50 percent joint venture with Pertamina but it was willing to pay only $45 million in ?cash bonus? to the state owned firm. (godang)