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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.
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