Pertamina demands compensation of $300 million from Cepu oil field: Report

State owned oil and gas company Pertamina has demanded a compensation of between US$100 million and US$300 million in return for the extension of PT ExxonMobil Oil Indonesia?s contract on the Cepu oil block in East Java, Bisnis Indonesia reported on Saturday.

"At present the board of commissioners of Pertamina are negotiating the extension of the contract as well as the compensation demand," a source said in Jakarta on Friday.

Pertamina?s director for upstream operation Iin Takhyan neither denied nor confirmed when he was asked about the compensation payment demanded by the state owned oil and gas company. "We will tell you when the negotiation is completed. But it is already certain that they (Exxon) have agreed to meet the demand," he added.

In addition to the cash compensation, ExxonMobil has also agreed to give Pertamina 22 percent stake in a joint venture that will operate the Cepu oil field after the existing contract ends in 2010. The oil giant will have 78 percent in the joint venture, which will be given a contract for another 20 years from 2010 to 2030 to operate the oil field, the source said.

Exxon?s proposal for the extension of its contract has sparked controversies among experts and government?s top officials. Some of them including State Minister for National Development/Chairman of the National Development Planning Board Kwik Kian Gie opposed the extension plan. The minister urged the government to terminate the contract and appoint Pertamina or other local companies to do the job so that larger parts of the benefits from the Cepu oil development will not go to foreign parties.

However Minister of Energy and Mineral Resources Purnomo Yusgiantoro said that the government would not be involved in deciding the future contract of the Cepu oil field. "It is Pertamina which has the right to decide if it is more profitable to terminate or to extend ExxonMobil?s contract," he said.

Under the existing technical assistance contract, the government has a 65 percent interest in the Cepu oil block, Pertamina (10 percent) and Exxon (25 percent). The Cepu oil block, which was taken over by ExxonMobil?s subsidiary Mobil Cepu Ltd from a company owned by former president Soeharto?s youngest son Hutomo Mandala Putra alias Tomy, is expected to start operation by 2003, with initial capacity of 50,000 barrels per day.

Exxon said that the operation of the oil block is not economically viable unless the company is given assurance to operate the oil block for another 20 years. (*)