Pertamina awarded Natuna block; ExxonMobil talks fail

Indonesia's energy and mineral resources ministry has awarded Pertamina the rights to develop the Natuna block in the South China Sea, including the Natuna D-Alpha gas field in Riau islands province.

Jun 20th, 2008

Eric Watkins
Senior Correspondent

LOS ANGELES, June 20 -- Indonesia's energy and mineral resources ministry has awarded state-owned PT Pertamina the rights to develop the Natuna block in the South China Sea, including the Natuna D-Alpha gas field in Riau islands province.

The award followed an impasse in negotiations with ExxonMobil Corp. over a contract extension. Originally, ExxonMobil held a 74% stake in the block, while Pertamina held the remaining 26%.

Pertamina will carry out a feasibility study and develop the site, according to Karen Agustiawan, upstream director. The block is estimated to hold 40 tcf of gas, making it one of the biggest gas reserves in Asia.

Agustiawan met with Indonesia's House of Representatives and said Pertamina had begun negotiations with the directorate general of oil and gas on terms and conditions of the new contract. Additionally, she said the state firm is arranging the study and terms of reference for choosing a partner, which likewise will be discussed with the ministry.

Pertamina finance director Frederick Siahaan said some $52 billion of investment would be needed to develop the block, which contains a large presence of carbon dioxide, and that Pertamina would seek funding from third parties. According to Pertamina Vice-Pres. Iin Arifin, four international oil companies have expressed interest in participating on the project, namely Royal Dutch Shell PLC, StatoilHydro, Petronas, and Petrovietnam.

The government said ExxonMobil's rights expired in 2005 after it failed to show any progress in developing the field. ExxonMobil denied the claim, saying it retained its rights to the block after investing some $400 million into its exploration. In February, following a deadlock in the ExxonMobil contract extension negotiations, the government instructed Pertamina to prepare to take over the block's development.

Earlier this month, ExxonMobil and the Indonesian government were still discussing terms for proceeding with development of the field (OGJ, June 9, 2008, p. 54).

Contact Eric Watkins at hippalus@yahoo.com.

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