Govt will not intervene in Exxon case: Minister

The government will not intervene in state-owned oil and gas company Pertamina’s decision not to extend Exxon Mobil’s Cepu block contract through the Ministry of Energy and Mineral Resources, the Investor Daily Indonesia newspaper reported in its Tuesday edition.

“It’s Pertamina’s right to not to extend the contract (of ExxonMobil). We don’t have the right and cannot intervene in this matter.” Minister of Energy and Mineral Resources Purnomo Yusgiantoro said on Monday in Jakarta.

The contract, according to Purnomo, belongs to Pertamina, therefore Exxon must talk to the state company.

He also mentioned that Cepu block case is a business affair between two companies. Pertamina’s decision on Exxon was already conveyed by its president director Widya Purnama to the House of Representatives’ Commission VII last week.

The block, located in Central and East Java, was considered "marginal" for decades given its small production output. In the early 1990s, under a technical assistance contract (TAC), Pertamina gave its operating rights over the block to a company owned by Hutomo Mandala Putra, the youngest son of former president Soeharto, which failed to find significant resources there. ExxonMobil took over the operating rights of the block in 1999.

ExxonMobil announced in 2001 the discovery of significant oil and gas resources in the area. It discovered 600 million barrels of oil and between 700 billion and 1.25 trillion cubic of feet of gas from the drilling of eight wells. Experts believe the amount of the reserves will be much larger once the exploration of the area is completed.

EMOI wants to extend its contract, which expires in 2010, for another 20 years to ensure a return on its investment. After three years of negotiations, EMOI and the former management of Pertamina agreed in June to sign a preliminary agreement for a joint venture to operate the block.

Pertamina's board of commissioners, led by State Minister for State Enterprises Laksamana Sukardi, apparently disapproved of the agreement. Two weeks ago, the government appointed a new management for Pertamina, led by Widya Purnama, whose first major decision was to announce that ExxonMobil's contract over the Cepu block would not be extended.

The BP Migas official said that under the Oil and Gas Law of 2002, all TACs should be converted into production sharing contracts that will be managed by BP Migas. The Cepu block should thus be returned to the government once EMOI's contract over the block expires in 2010. (*)