Negotiations over operation of Cepu oil block face deadlock

Negotiations between state owned oil and gas company Pertamina and its partner ExxonMobil Indonesia over the operation of the lucrative Cepu oil block in Central and East Java face a deadlock as both companies demand to become the operator of the block, Koran Tempo reported on Friday.

Pertamina's president director Widya Purnama said that Pertamina had proposed to act as the operator within the first five years of the oil block operation.

"But Exxon refused our proposal and demanded to become the operator from the beginning until the end of the contract," he was quoted by the paper as saying.

Pertamina is expecting the negotiations between both firms over the block could be concluded and signed by the end of this month. "If we are not able to make it this month, we will take a position," he said. But he did not elaborate.

The government recentlhy signed the new contract for the development of the Cepu oil block with Pertamina and ExxonMobil recently after a long process of negotiations.

The Cepu cooperation contract will provide the basis for Pertamina EP Cepu and a subsidiary of ExonMobil Corporation, Mobil Cepu Limited to jointly operate the block.

Under the new agreement, Pertamina and ExxonMobil will have participating interest of 45 percent in the Cepu oil block, each. The other 10 percent will be allocated to the local government which oversees the area where the oil block is located.

ExxonMobil was formerly operated the Cepu oil block under technical assistance contract with Pertamina. The contract would end in 2010 but the oil giant demanded the earlier extension of the contract for the certainty of its investment for another 20 years. (*)