U.S. feared to intervene in Cepu Block talks

By Leo Jegho

The protracted tug of war between U.S. energy giant ExxonMobil Corporation and Indonesia's national oil company Pertamina over Cepu Oil Block in Central Java has appeared to be still within normal business boundaries, but some in Indonesia have begun to worry that political intervention from the U.S. government could abruptly put Pertamina into the losing edge.

Indonesia's oil and gas business analyst Ramses Hutapea said the U.S. government will no doubt intervene if Pertamina does not backtrack on its plan to not extend ExxonMobil's technical assistance contract (TAC) to operate and manage the Cepu oil block. The contract expires in 2010.

ExxonMobil, through its unit Mobil Cepu Ltd, presently holds 100 percent interest in the Cepu Block.

"The United States has always used its geopolitical power to intervene in nearly all parts of the globe including in oil affairs," Ramses told Petromindo.Com over the weekend.

ExxonMobil, one of the world's largest oil and gas producers, has strongly urged Pertamina and the Indonesian government to extend its contract by 20 years to operate and manage the Cepu Block. ExxonMobil executives argued that Cepu TAC extension would be the only way for the company to regain the funds it had invested, and will invest, in Cepu oil fields.

Pertamina insists however that it be given up to 50 percent interest in the Cepu Block, citing that it wholly owned the block until former President Soeharto's youngest son Hutomo Mandala Putra, "forcibly" acquired an interest in the block in 1990. It remains unclear how Hutomo 'forcibly" acquired the interest, but Soeharto's children often used their political connections to get business contracts from state-owned companies.

Pertamina has never clarified whether its stance is directly linked to ExxonMobil's surprising revelation in April of last year that oil reserve in Cepu was estimated at some 250 million barrels. State-owned oil and gas research center Lemigas recently put the reserves at 450 million barrels, while a report by an international oil magazine, Upstream, estimated the reserve at a staggering 2 billion barrels.

Pertamina and ExxonMobil are now in talks to agree on the amount of the reserve.

ExxonMobil's 100 percent control in the Cepu Block dates from 1999 when Mobil Cepu Limited, then the Indonesian unit of Mobil Corporation, acquired 51 percent interest in the Cepu Block from Humpuss Patragas which was equally owned by Pertamina and Humpus Group, which was controlled by Hutomo Mandala Putra. Prior to the deal, ExxonMobil, through its Australian unit Ampolex Cepu Pte., had already controlled 49 percent interest in the block.

In June 2000, Exxon and Mobil merged into ExxonMobil Corporation which consequently controlled 100 percent interest in the Cepu Block.

Still, there is no clear explanation how and why Pertamina had lost its interest in the Cepu Block. Pertamina, together with Humpuss, was actually the operator of the block in 1997, prior to the entrance of Ampolex.

The government recently sought to settle the dispute between ExxonMobil and Pertamina, but no decision has been made on the matter.

Pertamina's board of commissioners (DKPP), which comprise several ministers, in their meeting on Aug. 14 failed to decide whether to extend ExxonMobil's contract. A source told Petromindo.Com that participants in the DKPP meeting had decided to let President Megawati Sukarnoputri decide on the future of Cepu Block.

Kwik Kian Gie, minister/chairman of National Development Planning Agency (Bappenas) and DKPP member, said that DKPP had actually agreed to extend ExxonMobil's contract in Cepu by 20 years. Kwik, who based his arguments on Lemigas' finding, said he was opposed to the decision saying that Indonesia would receive more benefits from the Cepu Block if Indonesian parties operate and manage it.

Ramses agrees with Kwik while pointing to Indonesia's 1945 Constitution that its natural resources must be optimally used for the welfare of the whole nation.

Ramses warns that multinational corporations like ExxonMobil are constantly forced to make the biggest profits possible, and in the shortest time possible. "So, it is very important for us to have clear knowledge about the real oil reserve in Cepu. Then DKP can proceed with its negotiations with ExxonMobil," he said.

Like Ramses, oil and gas analyst Kurtubi says the U.S. government will no doubt intervene in the Cepu Block case if Indonesia eventually refuses to give ExxonMobil's contract extension.

Kurtubi believes that the U.S. government will always try hard to defend the interests of American oil companies, all the more so the future of oil giants like ExxonMobil. "ExxonMobil represents the U.S.'s power in the global oil industry," he said.

However, politicians are more cautious about possible intervention from the U.S. government over Cepu.

Agusman Effendi, vice chairman of the House commission for energy and mineral resources, says he is not fully certain that the U.S. government will meddle in the Cepu case. Another commission member, Priyo Budi Santoso, only says: "Such intervention may happen."

Obviously, these people did not categorically mention what many believe to be the decisive weapon the U.S. would love to use against Indonesia: Indonesia's poor human rights record in East Timor.

(Reporting by Godang Sitompul and Robert Sihotang)