UPDATE: Pertamina rejects extension of Exxon Mobil?s contract on Cepu oil block

State oil and gas company Pertamina said on Wednesday it would not extend the technical assistance contract (TAC) of Exxon Mobil giant oil block in Cepu, Central Java expired in 2010, but said it was open to possibility of another form of cooperation after 2010.

?We have decided not to extend Exxon Mobil?s Cepu TAC when it expired, but we are still open to another form of cooperation such as joint venture,? said deputy director upstream Eteng Salam when addressing press conference.

?TAC contract will go on until 2010, and Pertamina has decided not to exercise its privilege to acquire 10 percent stake in the block. After 2010, Pertamina will take over the block and would give priority for Exxon Mobil to participate in the joint venture company. But Exxon Mobil will have to pay compensation for that,? said Eteng. He hinted that Pertamina would likely offer 50 percent interest for Exxon Mobil.

Eteng said Pertamina is expecting to complete negotiation on Cepu oil block as quickly as possible since it would give Exxon Mobil certainty over its investment in the oil block.

?If we don?t reach agreement (with Exxon Mobil), they will not be willing to spend money to develop Cepu oil block, while it was in Pertamina?s and government?s best interest to bring Cepu oil block into production as soon as possible,? said Eteng. ?So, it?s in our interest to keep Exxon Mobil to be involved in Cepu block after 2010.?

Eteng said the board of commissioner of Pertamina, which has final say on Pertamina?s strategic decision, has yet approved the plan.

Exxon Mobil?s official was not immediately available for comment.

Mobil Cepu Limited, wholly owned subsidiary of Exxon Mobil acquired Cepu oil block from a company owned by former president Soeharto?s youngest son Hutomo Mandala Putra. Exxon Mobil last year announced the discovery of recoverable oil reserve of at least 250 million barrels in 2001, but some studies said the recoverable reserve could be as big as 500 million barrels plus 6 trillion cubic feet of gas.

Under the technical assistance contract, Exxon Mobil is allowed to operate Cepu oil block, which is owned by Pertamina. The contract of Cepu block will end in 2010. Exxon Mobil had intended to extend the block?s contract, but Pertamina asked for huge sum of cash compensation and 50 percent equity participation in return of contract extension, which Exxon Mobil had repeatedly rejected.

The field was originally planned to be developed to flow oil of around 150,000 barrels per day starting 2003. But prolonged negotiation between Pertamina and Exxon Mobil put the development on halt. (alex/godang)