Cepu oil production startup still on track

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Dec. 4 -- ExxonMobil's Indonesian subsidiary PT Mobil Cepu Ltd., which operates the Cepu block, said the failure to acquire land from local residents will not prevent the initiation of oil production on Dec. 10.

Mobil Cepu Vice-Pres. Maman Budiman told parliament's House Commission VII, which oversees the country's energy and mineral resources, that the firm would start oil production as scheduled Dec. 10 despite the problems in acquiring the needed land.

"The first production site will produce less than 1,000 b/d, soon increasing to 20,000 b/d by March [2009]," Maman said, adding that Mobil Cepu would keep to its schedule of producing as much as 100,000 b/d by 2010 and 165,000 b/d by 2012.

Lawmakers had cast doubt on the company's schedule after learning that Mobil Cepu had not yet completed its acquisition of 250 hectares of land in Bojonegoro, East Java, site of the block's future main production facility.

Progress not as promised
Sutan Bhatoegana, deputy head of House's Commission VII, said during a Dec. 3 hearing that a visit to the block showed exploration had not progressed as much as the operator had previously promised.

Mobil Cepu reported that progress on the block had been hampered by residents refusing to sell the land.

Wahyudin Munawir, a member of Indonesia's Prosperous and Justice Party (PKS), said the price offered residents was too low at 75,000-80,000 rupiahs/sq m or as low as 60,000 rupiahs in some areas.

Other officials suggested that residents were holding out for higher prices because of the presence of oil.

"It seems like negotiators from [Mobil Cepu] could not yet make smooth deals with the local people," said Bojonegoro regent Suyoto. "Land owners tend to increase the prices when they know there is oil beneath their land," he said.

Land negotiations stall
Mobil Cepu does not even own the 20-hectare site on which its first well would start producing oil, said Suyoto, who offered Mobil Cepu his Bojonegoro administration's help with negotiations.

Deputy head Bhatoegana agreed that local government mediation, as suggested by Suyoto, would more quickly settle the land acquisition problem.

However, Mobil Cepu's Maman told the hearing that Indonesia's upstream oil and gas regulator BPMigas had approved the price offers, but he did not say whether the company would be willing to offer higher prices for the land.

The parliamentary investigations coincided with reports that Indonesia has set a new output target of 1.05 million b/d of oil and condensate production in 2010, up 10% over the earlier goal of 911,000 b/d set by BPMigas.

According to one official, the biggest contribution to increased output is expected to come from the Cepu block, owned 50:50 by Mobil Cepu and state-run PT Pertamina.

Contact Eric Watkins at hippalus@yahoo.com.

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