Govt, ExxonMobil reach principle agreement on Cepu block

The government has reached a principle agreement with American energy giant ExxonMobil, paving the way for an end to years-long dispute over the Cepu oil and gas block between the firm and state oil and gas company PT Pertamina.

Under the agreement, Pertamina and ExxonMobil will each get 45 percent of the contractor?s oil and gas revenue share from the block, located in the border area of Central Java and East Java, while the remaining 10 percent will go the local governments.

Both firms will operate the block under a production sharing contract (PSC), which allows them along with the local government to take between 15 percent and 30 percent of the block?s revenue. They will take 15 percent of the revenue, if oil price rise to above $45 per barrel, 20 percent if the price is between $40 and $45 per barrel, 25 percent if the price is between $35 and $40 per barrel, and 30 percent if the price falls below $35 per barrel, Martiono Hadianto, head of the government?s negotiating team, told reporters Friday evening.

The block is owned by Pertamina under a technical assistance contract (TAC) with the government. Under the TAC, the contractor of the block takes 35 percent of the block?s oil revenue. The Oil and Gas Law of 2001 has however scrapped the TAC system, while stipulating that all TACs must be changed into other type of cooperation contracts.

ExxonMobil took over the operation of the block 1999 from a firm owned by the youngest son of former President Soeharto who took over the operation of the block from Pertamina in the early 1990s. Pertamina later wanted to take the block back and sought to block ExxonMobil?s efforts to extend the current TAC which is due in 2010.

The block is believed to contain 500 million barrels of oil and trillions of cubic feet of natural gas.

The government stepped in to solve the dispute on concerns over the declining national output and an expectation that production from the block would increase the national oil output and generate more revenue for the government.

Under the principle agreement reached on Friday, Pertamina will also get $400 million from ExxonMobil as compensation for extending the contract.

?The principle agreement will be brought to Pertamina?s shareholders meeting on June 30 for approval,? Rizal Mallarangeng, spokesman of the government?s negotiation team , said.

?The heads of agreement (HOA) and the production sharing contract (PSC) for the block must be signed in 90 days from now,? Rizal added. (Godang/Dino)