Govt, ExxonMobil close to conclude a deal over Cepu oil block: Report

The government is near to conclude a deal with U.S. oil and gas giant ExxonMobil to develop the Cepu oil and gas block, the Kontan weekly reported in its June 6 online edition.

According to the report, Coordinating Minister for the Economy Aburizal Bakrie and president commissioner of state oil and gas firm Pertamina Martiono Hadiyanto had recently met with officials of ExxonMobil at the latter's headquarters in Houston, Texas.

"Negotiation with ExxonMobil is near completion. The Coordinating Minister for the Economy and President Commissioner of Pertamina have reached significant progress at the Houston meeting," said Lin Che Wei, an adviser to the government, who also joined the government team in Houston.

The following are some of the points agreed during the meeting, according to the Kontan report.

The development of the Cepu block would be based on a production sharing contract (PSC) from 2010 until 2030, underwhich the government will obtain 85 percent of the production, while the remainder would be taken by the contractor. Operational expenses would be covered by proceeds from the output before being split with the government.

The contractor of the Cepu block will be given to a new company, to be jointly set up by ExxonMobil Indonesia (EMOI), Pertamina, and the Bojonegoro regency administration (Cepu is located in Bojonegoro). EMOI and Pertamina will each hold 45 percent interest in the new company, while the Bojonegoro government will hold the remaining 90 percent.

The shareholders will have to cover the investment cost of around US$2.5 billion. This means that both EMOI and Pertamina will each have to come up with $1.12 billion, while Bojonegoro will have to provide around $250 million.

The question now is whether Pertamina and Bojonegoro have the necessary funds. A source at the Office of the Coordinating Minister of the Economy said that EMOI may have to loan the money to Pertamina and Bojonegoro.

Another point of agreement is that the funds already spent by EMOI in the development of the Cepu block will be converted as an initial investment of EMOI in the new company. The question now is on how much money had ExxonMobil spent in Cepu. While the U.S. firm claimed it has spent some $400 million, the figure was challenged by Pertamina, who estimated that the U.S. firm had only spent around $145 million. According to an audit by state comptroller BPKP, the amount of funds already invested by ExxonMobil was only $270 million.

EMOI spokesperson Deva Rachman could not confirmed whether there had been a proposal to set up a new company to develop the Cepu block, which is estimated to contain 2 billion barrels of oil reserces and 11 trillion cubic feet of gas reserves.

ExxonMobil has been seeking to extend the contract in Cepu block for another 20 years. The contract will expire in 2010. But both the government and Pertamina want a new term of conditions for the extension of the contract.(*)