Eric Watkins
Senior Correspondent
LOS ANGELES, Nov. 29 -- The Indonesian government said it will intervene in talks between ExxonMobil Oil Indonesia Inc. and Indonesian state-run oil and gas firm PT Pertamina if the two sides reach no agreement over operation of the Cepu Block in east-central Java by the end of next month.
Indonesian Vice-President Jusuf Kalla said talks will have to conclude by the end of January 2006; otherwise, the government will intervene. He gave no indication of how the government would rule.
To avert that development, however, a government team assisting talks between ExxonMobil and Pertamina has suggested the two firms could form a new company to operate the block jointly.
Deputy State Minister for State Enterprises Roes Aryawijaya, who heads the government team, said there is a proposal from the negotiation team for a new company to be formed in which Pertamina and ExxonMobil each would own a stake.
ExxonMobil and Pertamina have been negotiating a joint operation agreement for the Cepu Block, but they have not agreed on which of them should be operator and for how long.
Despite the deadlock, and perhaps to pressure ExxonMobil into an agreement, Pertamina said it plans to start drilling 30 wells in Sukawati and Banyu Urip fields on the Cepu Block.
Pertamina Pres. Widya Purnama said the state oil firm has set aside $120 million to start that drilling and will submit its plan of development for approval by Indonesia's upstream oil and gas regulatory body BP Migas early in January 2006.
Widya noted that such a decision is likely to prompt legal action from ExxonMobil, which he said has insisted on being the sole operator for the entire 30-year contract. He said Pertamina wants to be operator only for the first 5 years.
An industry regulator, however, said Pertamina could not unilaterally operate the Cepu oil fields even if it were to fail in reaching a deal with ExxonMobil on joint operation.
Trijana Kartoatmodjo, deputy head of BP Migas, said all development plans must be approved by both sides since Pertamina and ExxonMobil own equal shares.
In September, Pertamina and ExxonMobil signed a contract establishing joint ownership of Cepu oil field (OGJ Online, Sept. 20, 2005).
Earlier, in August, Indonesia's Energy and Mineral Resources Minister Purnomo Yusgiantoro said he would ask the two sides to clarify their respective stakes in the oil field (OGJ Online, Aug. 23, 2005).
The Cepu Block is expected to start producing oil in 2008 with output of 160,000-180,000 b/d.
Contact Eric Watkins at [email protected].
