Oil association welcomes govt-ExxonMobil deal over Cepu block

The Indonesian Petroleum Association welcomes the agreement reached between the government and American energy giant ExxonMobil over the development of the Cepu block in Central and East Java.

IPA chairman Chris B. Newton said on Monday that aside from increasing the national oil production, the agreement would improve investment climate in the nation?s oil and gas industry.

Newton also said the agreement would set a precedent for negotiations for contract extension in the future.

In view of the agreement, contractors would have a greater flexibility in negotiating the terms for their contract extension as they have more choices, according to Newton.

He noted however that the benefits to be gained by contractors from such an agreement ?remains to be seen?.

Under the principle agreement signed by ExxoMobil and the government?s negotiation team on Saturday, the portion of revenue to be received by ExxonMobil and its partners from the development of the block varies depending on the price of oil. If oil price hovers above $45 per barrel, ExxonMobil and its partners as the contractor will take 15 percent of the revenue. They will get 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. The balance will go to the central government?s pocket.

ExxonMobil?s partner in the block are state owned oil and gas company PT Pertamina and the local governments. Pertamina and ExxonMobil will each get 45 percent of the contractor?s oil and gas revenue share from the block, while the remaining 10 percent will go the local governments.

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.

Under the agreement with the agreement, ExxonMobil will get a contract extension of 30 years.

The agreement has yet to approved by Pertamina but the government has ordered the firm to sign a deal with ExxonMobil in less then 90 days from now.

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