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BP Migas, the country's upstream oil and gas executive
agency, is asking the Energy and Mineral Resources Ministry to set a
deadline for the negotiations with American oil giant ExxonMobil
regarding the company's contract in the Natuna gas block.
Speaking to reporters Wednesday, BP Migas chairman Kardaya Warnika said
a deadline needed to be set as prolonged talks would result in further
delays to the development of the gas block.
"We have asked the ministry to soon set a deadline for its talks with
Exxon so that we can move faster to determine the status of the Natuna
gas block," he said before the signing of a number of energy-related
contracts in Subang, West Java.
The signing ceremony was attended by President Susilo Bambang Yudhoyono
and a number of senior officials. Last year, the government terminated
Exxon's contract to develop the gas field due to the slow progress
being made. Exxon objected to the ending of the contract, but later
agreed to talks with the government.
The production-sharing contract for the Natuna D-Alpha block was
awarded to Exxon and its partner, state oil and gas firm Pertamina, in
1980.
The contract was later amended in 1995 due to technical difficulties
faced by Exxon in developing the costly gas field, giving the company
until 2005 to bring the field onstream -- five years longer than the
initial contract.
Under the 1995 agreement, Exxon is also allowed to extend its contract
twice, for a period of two years each time, subject to the condition
that it has made significant progress in developing the block.
Exxon disputed the termination of the contract, arguing it had spent
about US$400 million on exploratory work.
Exxon has an 86 percent interest and Pertamina the remaining 24 percent
interest in the gas field, which is said to be the biggest in Southeast
Asia, with 46 trillion cubic feet of recoverable gas reserves.
Before the negotiations commenced, the government considered three
options for the future of the gas block -- retendering the contract,
giving the exploration rights to state-owned oil firm PT Pertamina,
which had already spent $60 million on the exploration of the block, or
renegotiating the deal with Exxon.
Kardaya also said that Exxon had proposed a "standstill" arrangement to
the government during the negotiations, under which neither side would
resort to arbitration while the negotiations were still underway.
Exxon vice president for public affairs Maman Budiman, who also
attended the signing ceremony, confirmed that the company had proposed
a standstill arrangement.
He said that this would include a halt exploration activities, and was
necessary before Exxon submitted new proposals, including a more
favorable production-sharing split for the government.
Under the old contract, the production split between Exxon and the
government is 100 percent to zero in favor of Exxon, as compared to 35
percent to 65 percent in favor of the government in other gas fields.
The government has argued that given current high oil prices, the
production split needs to be changed.
Exxon was one of a number of major energy companies that signed new
contracts during Wednesday's ceremony. Exxon's contract was for oil and
gas exploration in the offshore Mandar oil block in the western part of
Sulawesi, where the company has committed itself to spending about $411
million.
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