SBY orders Pertamina to gear up for Natuna block

Rendi Akhmad Witular and Ika Krismantari, The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono on Tuesday instructed state oil and gas company Pertamina to prepare to take over the development of the gas-rich Natuna block from U.S. energy giant ExxonMobil Corp.

Yudhoyono has given Pertamina three weeks to come up with a detailed plan of development for exploring the largest natural gas reserve in Southeast Asia before making a final decision to scrap ExxonMobil's rights to operate the block.

"The President has ordered Pertamina to get ready for taking over the block. The company will have to prepare the plan of work before the president decides to officially granted the block," Energy and Mineral Resources Minister Purnomo Yusgiantoro told said at the Presidential Palace.

However, Purnomo declined to elaborate on what step the government would take next should Pertamina's upcoming work plan fail to impress the President.

Yudhoyono's instruction comes following a recent deadlock in negotiations between the government and ExxonMobil on extending the development of the Natuna D-Alpha block, estimated to hold 46 trillion cubic feet of gas.

Under existing regulations, Pertamina stands first in line to take over when contracts with private developers are terminated.

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

ExxonMobil has denied the claim, saying it retained its rights to the block after having sunk some $400 million into exploration.

The issues over which negotiations foundered, according to Purnomo, were revenue sharing and taxes, contract term and termination, government guarantee, asset depreciation, sunk costs and first-trance petroleum arrangements.

"We have given ExxonMobil two years to negotiate and to come up with latest feasibility study. But they have failed to meet our requirements, forcing us to shift their rights," he said.

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

Pertamina president director Ari Soemarno said the work plan to be presented to Yudhoyono would include a financing scheme, feasibility study, technology capability, as well as potential partners.

"It is going to be a complicated project as it will need advanced technology for separating carbon dioxide (CO2) from the gas. If it is realized it will be the world's largest offshore gas exploration ever," he said.

Ari said several global energy giants, such as Royal-Dutch Shell, Total SA, StatOil and ExxonMobil, were interested in forming a partnership with Pertamina to develop the block.

The government has estimated at least $30 billion would be needed to develop the block. However, Pertamina previously said the investment could soar to as much as $52 billion, making it the largest investment in Indonesian history.

Meanwhile, ExxonMobil Oil Indonesia spokeswoman Deva Rachman told The Jakarta Post the company had not yet been advised by the government on this plan.

She said the company hoped negotiations would go on and a win-win solution could be reached in the near future.