Govt suggests ExxonMobil, Pertamina to jointly operate Cepu block

A government team helping ExxonMobil Oil Indonesia Inc and state oil and gas firm PT Pertamina negotiate a joint operation agreement for the Cepu oil block suggested that the two firms form a new company to operate the block together.

"There is a proposal from the negotiation team for a new company to be formed in which Pertamina and Exxon will each own a stake," Deputy State Minister for State Enterprises Roes Aryawijaya, who heads the government team, said as quoted by AFX.

He said the extent of ExxonMobil and Pertamina's ownership in the new company will be negotiated next week.

Talks between the two have been slow since they agreed with the government in June to jointly develop the Cepu oil and gas block under a 30-year contract awarded by the government.

Under the deal, ExxonMobil and Pertamina would each hold a 45 pct stake in the block, with the remaining 10 pct allocated to a third contractor representing the local government where Cepu is located.

But ExxonMobil and Pertamina have yet to decide who should operate the block and for how long.

The joint operation agreement was originally expected to be signed in September. The government wants Cepu to start producing oil immediately to shore up the country's declining oil output.

Yesterday, Vice President Jusuf Kalla said if no agreement is reached by next month the government will intervene in the negotiations.

Located in East and Central Java, the Cepu block is expected to start producing oil in 2008 with an estimated output of 160,000-180,000 barrels of per day.(*)