Massive Cepu block resumes production

Alfian, The Jakarta Post, Jakarta | Tue, 09/01/2009 9:32 AM

Exxon Mobil Corp. resumed production on Monday at its Cepu plant with output anticipated to increase up to 15,000 barrels of oil a day by September, after the state regulator threatened to revise its contract if it continued to delay output.

The block, which holds the country’s largest untapped reserves, is being managed by Mobil Cepu Ltd (MCL), a subsidiary of US-based oil producer ExxonMobil.

Exxon spokesman Maman Budiman said the block’s Banyu Urip field had begun delivering oil for facilities’ start up and commissioning on Monday afternoon.

“The start-up and commissioning were done to make facilities able to produce more than 5,000 barrels of oil per day [bpd],” he said in a text message.

Upstream oil and gas regulator BPMigas’s chairman R. Priyono said the field would initially produce between 2,000 and 5,000 bpd.

The Banyu Urip field began oil production in limited quantities in December last year, but production was put on hold in April because of incomplete facilities.

Located on the border between East and Central Java, the Cepu block is said to have massive proven reserves of 600 million barrels of oil and 1.7 trillion cubic feet of gas.

MCL and state oil and gas company PT Pertamina each hold a 45 percent participating interest in the block.

A consortium of enterprises controlled by provincial administrations holds the remaining 10 percent participating interest.

For its slow development of the block, MCL’s operatorship has drawn strong criticism from lawmakers and the government, through upstream oil and gas regulator BPMigas, because the block’s production had missed several deadlines with initial output scheduled for 2008.

The government relies heavily on the block to help jack-up its dwindling oil output, and had expected Cepu to begin contributing 20,000 bpd as of September last year.

However, this has yet to be realized. At its peak, the Cepu block could produce about 160,000 barrels of oil per day — about 15 percent of the country’s current total oil production.

Declining oil production has forced Indonesia to become a net oil importer and led the Indonesian government to request its withdrawal from the Organization of Petroleum Exporting Countries (OPEC) last year.

BPMigas joined forces to slam the MCL’s operatorship of the block, threatening to revise the terms of the contract should the company continue to delay production.

After threatening to replace MCL’s management if they failed to meet the output target, BPMigas chairman R. Priyono said the terms and conditions stipulated under the joint of agreement (JOA) between MCL and Pertamina in developing the block were among the worst and needed revision.

“Pertamina’s position in the JOA is very weak. We may have to improve this JOA,” he said, without elaborating.

Oil and gas formed the backbone of Indonesia’s state revenue.

Data from the Energy and Mineral Resources Ministry suggests that last year the sector contributed Rp 304.38 trillion or more than 30 percent of the total state revenue.

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