Indonesia, Pertamina, Exxon Mobil in Cepu oil deal

09/18/2005

Saturday September 17, 1:26 PM EDT

JAKARTA (Reuters) - The Indonesian government on Saturday signed a contract with state oil company Pertamina and U.S. oil giant Exxon Mobil Corp (XOM) to develop Cepu block, mines and energy ministry officials said.

Jakarta estimates Cepu block on Java island could hold more than 500 million barrels of oil and could boost Indonesia’s production by as much as 180,000 barrel-per-day (bpd)—equivalent to about 19 percent of the country’s current output.

“Today we have witnessed the signing of production sharing contract between the government, Pertamina and Exxon Mobil. We expect it to boost Indonesian oil production in the near future,” Mines and Energy Minister Purnomo Yusgiantoro said.

Steve Greenlee, an Exxon Mobil official, said the contract would be for 30 years. But he added the parties involved need to work out further details before they can start developing the block. He did not give further details.

Pertamina vice president Mustiko Saleh reiterated Pertamina and Exxon Mobil will each has a 45 percent participating interest, with the remaining 10 percent going to the regional government.

Under a previous scheme, Exxon Mobil was the operator of the block under a technical assistance contract with Pertamina that expires in 2010, and has been negotiating for four years to extend the contract and begin development.

Indonesia, suffering from declining oil production, reached a tentative agreement with Exxon Mobil in June to develop Cepu’s potentially huge reserves, seemingly ending deadlocked talks on key issues such as the production split and share interests.

Indonesia’s new graduated profit deal envisions 85 percent of the revenues for the government and 15 percent for contractors when the oil price is above $45 per barrel, with the investor getting a bigger share if oil prices were to fall.

Pertamina had decided last year not to extend the contract for Exxon Mobil for the Cepu block development after it expired.

But the government ordered officials to work out a deal in a bid to improve Indonesia’s investment climate and boost flagging output in Asia-Pacific’s only member of the OPEC cartel.

The government has said production from Cepu could begin in 2008.