Pertamina, ExxonMobil reach agreement on Cepu block

State-owned oil and gas company Pertamian said on Thursday that it had reached an agreement with U.S. energy giant ExxonMobil Corp to jointly develop the huge reserves of the Cepu block.

Pertamina?s president Ariffi Nawawi said that in the latest negotiations, both parties agreed on the compensation payable by ExxonMobil to Pertamina ? an issue that had become a stumbling block in the past negotiations.

Ariffi however refused to specify the amount of the compensation.

?The agreement is subject to the approval of (Pertamina?s) shareholders,? he said on the sidelines of a seminar on gas in Jakarta.

The Cepu block, located in the border areas of Central and East Java provinces, was originally owned by Pertamina. Under the administration of former President Soeharto, it was pressured to hand over the block to a company owned by Soeharto?s son Hutomo Mandala Putra. ExxonMobil later bought out the block from Hutomo.

ExxonMobil has said that it has found oil reserves of above 250 million barrels and gas reserves amounting to 6 trillion cubic feet in the block. But, Pertamina believes the block contains larger reserves.

ExxonMobil sought to extend the contract on the block, which expires in 2010, for another 20 years. However, Pertamina demanded a 50 percent stake in the block and a cash compensation amounting to $400 million for the contract extension.

In the previous negotiations, ExxonMobil voiced agreement to set up a 50-50 percent joint venture with Pertamina but it was willing to pay only $45 million in ?cash bonus? to the state owned firm.

Before signing a deal with ExxonMobil, Ariffi said Pertamina would ask several agencies, including state-owned oil, mining and energy think tank Lemigas, to verify ExxonMobil?s data on Cepu?s reserves.

?We are optimistic to start construction at the Cepu block later this year,? Ariffi said. (Godang/Alex)