[Kabar-indonesia] 2 updates: Exxon Natuna Contract "Terminated:" RI Energy Minister

[JoyoNews at aol.com]

also: Indonesia cancels ExxonMobil's Natuna gas contract

Indonesia Energy Minister: "Terminated" Exxon Natuna Contract

By Deden Sudrajat and Phelim Kyne

JAKARTA, Oct. 11 (Dow Jones)--Indonesia's government has "terminated" U.S. 
oil giant Exxon Mobil Corp.'s (XOM) contract to develop the Natuna D-Alpha gas 
block in Indonesia's East Natuna Sea, a senior government minister said. 

"I have met with Exxon and I have officially told them that the contract has 
been terminated because they couldn't propose the commercialization and 
feasibility for the development of Natuna," Minister of Energy and Mineral Resources 
Purnomo Yusgiantoro told reporters late Tuesday. 

"Now we have to sit down again...to discuss the legality of the contact's 
participating interest, (production) share and so on." 

Exxon Mobil, however denied any termination of their Natuna development 
contract and said that legally, they could continue development preparation until 
January 2009. 

"We still have more years from 2007 (to develop Natuna) according to our 
production sharing contract," Jakarta-based spokeswoman for Exxon Mobil's local 
unit, Deva Rachman, told Dow Jones Newswires Wednesday. 

In December, Exxon Mobil Indonesia Inc.'s President and General Manager Peter 
J. Coleman told reporters the company was proceeding with a "four-year plan" 
to deliver natural gas from the Natuna D-Alpha block to foreign buyers by 
2014. 

Exxon Mobil has estimated that the Natuna D-Alpha block holds 46 trillion 
cubic feet of recoverable natural gas reserves. 

Purnomo said the government would give Exxon Mobil a "grace period" to 
continue its Natuna development operations until the end of 2006. 

Meanwhile, the ministry has tasked the official upstream oil and gas 
regulator, BPMigas, to launch talks with Exxon on a possible renewal of the production 
sharing contract, he said. 

Purnomo's comments are likely a greater reflection of a bargaining bluster 
than substance as Indonesia ratchets up the pressure on Exxon Mobil to revise 
its Natuna production sharing contract, with natural gas prices reaching record 
highs on the global market. 

Exxon and state-owned Pertamina (PTM.YY) are the joint contractors for 
Natuna, with Exxon holding a 76% contractor's share compared to Pertamina's 24%. The 
production sharing contract awards 100% of all output revenues to the 
contractor, due to the perceived difficulty of tapping the Natuna block. 

The majority of production sharing contracts for oil and gas development 
operations in the country hinge on a 40% output revenue share for the contractor 
with the remaining 60% allocated to the Indonesian government.

The Indonesian government began putting the pressure on Exxon last month when 
Purnomo threatened to cancel the company's Natuna contract if the company 
didn't begin development of the block by Jan. 8, 2007. 

Vice President Jusuf Kalla also raised the issue of a revised production 
sharing contract for Natuna during meetings with Exxon executives during a Sept. 
23-28 state visit to the U.S. 

"The contract must be reviewed and benefit both parties - only then will we 
do business," the English-language Jakarta Post reported Saturday, quoting 
Kalla. 

The Natuna spat has unsettling echoes of the lengthy disagreement between 
Exxon and Pertamina over a joint operating contract to tap the massive Cepu block 
in East Java. That dispute became a symbol among foreign investors and 
analysts of the perils of contract enforcement in Indonesia before it was finally 
resolved in March. 

Exxon Mobil has reassured the Indonesian government that it will fulfill its 
contractual obligations to develop the Natuna block and is already in 
discussions with potential gas buyers including Thailand's PTT PCL and Malaysia's 
state-owned Petroliam Nasional Bhd, or Petronas, Rachman said. 

"We've explained our commitment to the government of Indonesia...that we have 
made some commitments to sell to credible buyers," she said. 

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AFP, October 11, 2006

Indonesia cancels ExxonMobil's Natuna gas contract

Indonesia has terminated a contract with ExxonMobil Corp to drill a major 
offshore gas field in the Natuna Sea off the west coast of Borneo, in a move that 
may alarm foreign investors.

ExxonMobil however said that the contract stood firm as it was extendable and 
they were still working to develop the field.

The potential spat could heighten concern among foreign investors about the 
perils of doing business in Southeast Asia's largest economy, which is set to 
hold a summit offering infrastructure projects to foreigners next month.

Energy minister Purnomo Yusgiantoro said late Tuesday that Exxon had failed 
to submit a plan for developing the block and selling the gas, which has a high 
ratio of carbon dioxide so is difficult to extract, to the regulator.

"So the contract was automatically terminated," Yusgiantoro told reporters.

He said Exxon, which had a 76 percent stake in the Natuna D-Alpha block, had 
mistakenly thought the contract had been extended until 2009.

Yusgiantoro said that state oil and gas firm PT Pertamina might now be first 
in line to operate the block. The company holds the rest of the share in the 
block.

Pertamina chief executive Ari H. Soemarno said that the state firm would 
still like to explore it.

"If Pertamina does not continue exploration of that block, the money we have 
invested will be gone," he was quoted as saying by Bisnis Indonesia.

But a spokeswoman for the local unit of Exxon Deva Rachman said that based on 
a contract signed with the government in December 2004, Exxon could extend 
the contract twice -- each for a period of two years -- from 2005.

"There is a clause in the contract stipulating that we could extend the 
contract twice," she told AFP.

"What we are pursuing to do now, based on that clause, is to maximise all 
possible conditions in order to further develop the Natuna D-Alpha field, which 
has a complex composition of gas reserves," Rachman said.

She said Exxon had so far spent more than 350 million dollars exploring the 
block. Exploration by the Texas-based firm and the government began in 1980 and 
the field is estimated to hold 46 trillion cubic feet of recoverable gas.

Oil and gas industry analyst, Kurtubi who heads the independent Center for 
Petroleum and Energy Economic Studies in Jakarta, said he believed a new 
contract would be negotiated between the two sides.

"I am almost sure that the government would most welcome a contract extension 
if ExxonMobil can work on one and quickly resume exploration there," he told 
AFP.

"What's important for the government now is that they start earning income by 
developing its natural resources," he said.

Kurtubi said that the termination of the contract was "more of a warning by 
the government for foreign oil investors who have signed contracts with the 
government to fulfill their obligations."

The disagreement follows the resolution in March of a four-year dispute 
between ExxonMobil and Pertamina over the joint operation of the Cepu oil field.

Concern among foreign investors over involvement in oil and gas projects in 
Indonesia, Southeast Asia's only member of the Organisation of Petroleum 
Exporting Countries (OPEC), has been a factor in the country becoming a net oil 
importer in recent years.

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Joyo Indonesia News Service
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