Pertamina to take over Natuna from ExxonMobil

Ika Krismantari and Titien Wayansari, The Jakarta Post, Jakarta, Pekanbaru, Riau

Vice President Jusuf Kalla said Thursday the government would grant state oil and gas firm PT Pertamina the right to take over the development of the gas-rich Natuna block from U.S. energy giant ExxonMobil Corp.

The decision was made following a deadlock in negotiations between the government and ExxonMobil on extending the development of the Natuna D-Alpha block, the biggest natural gas reserve in Southeast Asia.

Kalla said the decision was in line with existing regulations which gave Pertamina priority to take over any block should the contract with private developers be terminated.

"Because there has been no (positive) result in the negotiations with ExxonMobil, Pertamina has been given priority to take over the development of the block. The decision is in accordance with Indonesian law," said Kalla.

He said Pertamina was permitted to seek partners in developing the gas block, which is estimated to hold 46 trillion cubic feet of gas.

Upstream oil and gas regulator BPMigas chairman Kardaya Warnika recently said negotiations to extend ExxonMobil's contract stalled after the two parties failed to come up with a deal.

Negotiations started after the government and ExxonMobil had different views on clauses which could result in the company losing its right to develop the field.

The government claims ExxonMobil's rights were terminated in 2005 after it failed to show any progress in developing the field.

ExxonMobil denied the claim, saying it had already spent approximately $400 million for exploration of the field, which gave it the right to an extension until 2009.

ExxonMobil holds a 74 percent participating interest in the block, while Pertamina holds the remaining 26 percent.

Pertamina president director Ari Sumarno confirmed that Pertamina has been granted the right to take over the block, and that the company is now waiting for an official letter from the government.

"We will wait to see what the government will offer in the new contract as it will definitely involve a change in production split," he said.

Earlier, Ari said Pertamina would seek new partners to develop the block because it is now estimated to require an investment of $52 billion, far higher than the initial estimate of $25 billion.

He said massive investment was needed since the gas in the block has a carbon dioxide (CO2) content of approximately 70 percent.

The gas currently being traded on the global market usually contains no more than 5 percent CO2.

ExxonMobil and the government, represented by Pertamina, had earlier engaged in a protracted four-year dispute over the development of Cepu oil block in Central Java. The parties managed to reach a settlement on Cepu in 2006.