UPDATE 4-Indonesia, Exxon agree deal on $2.6bln Cepu oilfield http://today.reuters.com/business/newsarticle.aspx?type=tnBusinessNews&storyID=nJAK92664&imageid=&cap=
Monday 13 March 2006, 7
By Muklis Ali
JAKARTA, March 13 (Reuters) - Indonesia's Pertamina has reached a joint operation deal with Exxon Mobil Corp. for the $2.6 billion Cepu oilfield development, officials said on Monday, making way for a badly needed boost in the country's oil output.
The giant Cepu oilfield would allow Indonesia, struggling to maintain production in rapidly ageing fields, to boost output by a fifth after production begins in a projected 31 months, which would mean in late-2008, officials said.
State oil and gas company Pertamina and U.S. oil titan Exxon Mobil (XOM.N: Quote, Profile, Research) have been embroiled in a long-running dispute over control of the oilfield on Java island, Indonesia's biggest discovery in decades.
The failure to settle the row has been cited as a negative factor for would-be foreign investors in Asia Pacific's only OPEC member, which suffered a $7.3 billion oil-trade deficit last year on declining investment in the exploration sector.
Ari Soemarno, who took over as president director of Pertamina last week after a management reshuffle analysts had expected to help end the stalemate, said the Indonesian firm would collectively operate Cepu with Exxon.
"Pertamina has reached an agreement with Exxon over the Cepu block," Soemarno told reporters. "It will be a joint operator," he said, when asked who would take control of operations.
But he later said Exxon would take the general manager position at the operation.
QUESTIONS
That still left some questions hanging about how precisely the deal would work on a day-to-day basis and the way differences would be resolved, especially with staff from both companies expected to be part of the operation.
"According to the plan, production can commence 31 months after the agreement has been signed," Soemarno added.
A government official confirmed that a deal has been agreed. "I... as the head of the negotiation team, have received reports that a business-to-business deal has been reached to conduct joint operation," Roes Aryawijaya, who is also a deputy minister at the state enterprises ministry, told reporters.
Asked about development cost for the field, Budiono, an executive director at Exxon, told reporters: "Between $2.5 billion to $2.6 billion."
"Initial production will be around 25,000 barrels per day," he added, without giving further details.
Pertamina had earlier insisted on rotating as operator of Cepu every five years, while Exxon said it was the rightful operator under an agreement signed last year.
The development is also crucial to Exxon, the world's largest listed company, as its production from other regions is limited.
An oil analyst said the deal could help push forward the production schedule at Cepu, estimated to have recoverable reserves of up to 600 million barrels, and expected to ultimately produce up to 180,000 barrels daily.
"We expect production will be realised as soon as possible. If necessary, the schedule for production from Cepu may be accelerated," said Kurtubi, an oil analyst at the Center for Petroleum and Energy Economics Studies.
"The Cepu block is very important for the Indonesian government to cut crude imports in future to save foreign exchange. This agreement will also give a positive signal to foreign oil investors in Indonesia."
Investors from energy and other sectors have been monitoring the dispute to gauge Indonesian attitudes toward foreign companies.
Indonesia turned a net importer of crude last year as many of its operating oilfields are old and suffering from production declines, and is looking to the production from Cepu to reverse the trend.
© Reuters 2006. All Rights Reserved.