UPDATE 1-Indonesia says to give Exxon priority on Natuna gas http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-10-20T071049Z_01_JAK227645_RTRIDST_0_ENERGY-INDONESIA-EXXON-UPDATE-1.XML&rpc=66&type=qcna
Fri Oct 20, 2006
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JAKARTA, Oct 20 (Reuters) - Indonesia will give Exxon Mobil Corp. (XOM.N: Quote, Profile, Research) top priority to renegotiate a new operating contract for the huge Natuna offshore gas field, Vice President Jusuf Kalla said on Friday.
Indonesia's oil minister, Purnomo Yusgiantoro, previously said the government had terminated the operating contract for the gas field off Borneo island, because the U.S. major had failed to find a market for the gas.
Exxon has disputed this and said the contract allows for two more years for it and Indonesian state energy firm Pertamina to satisfy conditions or proceed with development even if the terms for development of the field are not met by Jan. 8, 2007.
"The president will decide policy on how the country can obtain as much benefit as possible from Natuna," Indonesia's vice president told reporters. "The contract has legally already expired. Certainly we will give Exxon first priority to renegotiate (on terms and conditions)," Kalla said.
Exxon Mobil has a 76 percent stake in D-Alpha while Indonesian state energy firm Pertamina has 24 percent.
The firm has said it has made significant progress marketing Natuna gas to credible buyers.
An official at oil watchdog BPMIGAS, who declined to be identified, said on Friday that the terms of the agreement that Indonesia says has expired did not benefit the country enough.
The Natuna D-Alpha block contains around 222 trillion cubic feet (tcf) of gas, of which 46 tcf is thought to be commercially recoverable, but the field contains about 70 percent carbon dioxide, making it expensive to develop and difficult to sell.
Despite the difficulties developing the field, the move to end Exxon's contract may cause concern among foreign investors about uncertainties of doing business in Indonesia, compounding worries over the legal system, labour and corruption.
Indonesia and Exxon Mobil signed a basic agreement in 1995 covering an estimated $40 billion to be invested in the offshore gas project in the South China Sea. However, tapping the reserves has proved difficult. The gas in Natuna D-Alpha, about 1,100 km (680 miles) north of capital Jakarta and 200 km east of the West Natuna fields that are currently feeding gas to Singapore, accounts for about a quarter of Indonesia's total gas reserves of 182 tcf.
Asia Pacific's sole OPEC member has far more gas than oil, and is trying to phase out costly oil-fired power generation and uses more of its cheaper, cleaner natural gas domestically.
But the country faces limited supplies due to long-term LNG export commitments, which it is reviewing.
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