Pertamina terminates ExxonMobil?s Cepu block contract

Newly appointed president director of state oil and gas company PT. Pertamina said Wednesday it had decided not to extend the contract of ExxonMobil-operated Cepu block which contained huge reserves of oil and gas when the technical assistance contract (TAC) expired in 2010.

?Pertamina would take over from ExxonMobil when the contract expires in 2010. Pertamina has the capacity to operate the block on its own,? Pertamina president Widya Purnama said in a parliamentary hearing.

?This week Pertamina will notify ExxonMobil in writing about the decision (no to extend the contract),? said Widya.

The decision is seen to be a major blow to ExxonMobil, which had spent US$ 450 million to acquire, explore and to plan for development of the giant oilfield which is located in the border of Central and East Java provinces.

Pertamina and ExxonMobil?s negotiators had reportedly signed heads of agreement on the joint venture scheme, in which the two companies would share equal interest on the block and ExxonMobil would pay some US$ 125 million in bonus to Pertamina. But reports say Pertamina's commissioners cancelled the decision for unknown reason.

The technical assistance contract held by ExxonMobil to operate the Cepu oil field will terminate in 2010. But the oil giant demanded an earlier extension of the contract for another 20 years for the certainty of its investment in the oil field.

The oil field was formerly owned by Humpuss, which is controlled by former president Soeharto's youngest son Hutomo Mandala Putra alias Tommy. Humpuss sold 49 percent ownership in the oil field to Ampolex Ltd in 1997 and the other 51 percent in to ExxonMobil's subsidiary Mobil Cepu Ltd in 2000 following the fall of the former authoritarian leader after more than 30 years in power. Ampolex later sold its ownership to Mobil Cepu making the latter as the sole owner of the oil field.

Widya went on to say that despite the decision not to extend ExxonMobil?s contract on Cepu, Pertamina was still open to foreign partner?s participation to develop the block. ?Pertamina is open to foreign participation as long as it gives benefit to Pertamina and to the country,? he said.

A Petromindo.Com source said that the decision would make development plan to exploit Cepu cannot be executed before 2010. ExxonMobil originally planned bring the field into production 2 years after negotiation was completed. ?Beside, the decision will create tension between US government and Indonesian government, as the former would do political approach to push for the joint venture to happen.?

ExxonMobil initially planned to develop Banyu urip field to flow some 150,000 BPD. (godang)