Mobil Cepu penalized for failing to meet production schedule

ExxonMobil Oil Indonesia?s subsidiary Mobil Cepu Limited has finally received a penalty from oil and gas upstream regulator BPMIGAS for its failure to meet production schedule at the Cepu block.

BPMIGAS chairman R. Priyono said in Jakarta on Tuesday that the agency had decided to withdraw the domestic market obligation (DMO) holiday incentive given to the company because it had failed to meet its commitment to begin production in 2008.

Mobil Cepu was previously allowed to begin fulfilling its DMO obligation in 2011 as part of the incentives for the company to speed up production. The firm was asked to start production in 2008. However, the company could only start production in August 2009.

"Because of the delay in the production, the company has to fulfill DMO requirement beginning the start of production in August, 2009, not in 2011 as stated in the incentive letter,? he said during a hearing with the House?s Commission VII in charge of, among others, oil, gas and mining affairs.

According to DMO requirement, an oil and gas contractor must, soon after production, sell 25 percent of its production share to the local market at a price level equal to 25 percent of the Indonesian crude price reference.

The government named Mobil Cepu Limited in March 2006 as the operator of the Cepu oil block. The company and Pertamina have 45 percent stake in the oil block, respectively. The remaining 10 percent is held by a consortium of East Java and Central Java administrations.

Meanwhile ExxonMobil spokesman Maman Budiman said that Mobil Cepu was expected to meet its target to achieve a peak production of 165,000 bpd in 2013 if production facilities could be completed on schedule.

He said that the company was still awaiting the government?s approval for a tender to develop the block's production facilities. According to him, the construction of the facilities will take at least 36 months to be completed.

General Manager of ExxonMobil Indonesia Terry S McPhail said that Mobil Cepu planned to increase production to 16,000 bpd next year.

At present, Mobil Cepu produces about 13,000 bpd, lower than the production capacity of 20,000 bpd because buyers of the crude oil are not able to absorb all the production. (*)