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January 17, 2009

Indonesia: Exxon Mobil's Natuna gas proposal rejected
Indonesia has rejected a proposal by Exxon Mobil Corp to develop the giant Natuna D-Alpha gas field, saying the contract held by the US oil major expired in 2005, Reuters quoted the energy minister as saying Friday.

The move, revolving around the dispute between Exxon Mobil and the government over the US major's role in the project and over how to split the gas output, would further delay the project's start-up, but would not end Exxon's involvement, analysts said.

Exxon Mobil submitted a development plan to Indonesia's energy watchdog, BPMIGAS, and to the director general of oil and gas at the energy ministry, at the end of last year.

The Natuna D-Alpha block in the South China Sea has around 222 trillion cubic feet (tcf) of gas reserves.

About 46 tcf of these are thought to be commercially recoverable, accounting for roughly a quarter of Indonesia's total commercially recoverable gas reserves.

"The submission of the plan to develop the field would be accepted if BPMIGAS and the contractor had both previously agreed that the field was commercially viable for development based on a feasibility study," Energy Minister Yusgiantoro Purnomo told reporters.

"We sent a letter of rejection on January 14," he said.

BPMIGAS is responsible for monitoring and controlling oil and gas contractors working in Indonesia.

An Exxon Mobil Indonesia official disputed that the contract was not in force, but said it was seeking a resolution.

"We respectfully disagree that our PSC (production sharing contract) is not effective, but we remain interested in a resolution which allows development of this resource to proceed with the support of the Government," Maman Budiman, a senior vice president at Exxon Mobil Indonesia, said via a telephone text message.

"We have honoured our commitments under the PSC and will continue to do so," Budiman said.

The US firm has said it had submitted its development plan ahead of the expiry and in line with the contract.

Indonesia has said that Exxon Mobil's contract giving it a 76 percent share has already expired, whereas the energy major has said that the contract was valid until January 9, 2009.

Indonesia has said talks with Exxon Mobil, which has controlled the block since the 1990s, had stopped on the offshore gas project due to disagreements on how to split the gas output.

Other unresolved issues with Exxon Mobil on the block, which is about 1,100 kilometres (680 miles) north of Jakarta and 200 km east of the West Natuna fields that feed gas to Singapore, included the length of the U.S. firm's contract.

Indonesia's government has appointed state oil firm Pertamina as the operator of Natuna, but the state company does not have the capacity to develop the gas field alone, which is estimated to need $40 billion in investment.

Budiman said Exxon Mobil was in a unique position to develop the project in partnership with Pertamina and could bring technological expertise, proven large scale project execution capacity and experience with complex gas projects.

Despite the latest move in the long-running dispute, Kurtubi, an analyst at the Centre for Petroleum and Energy Economics Studies in Jakarta, said that Exxon Mobil should be used as a partner, particularly given its expertise..

"If Pertamina take others companies to be a partner, there will be a risk that Exxon could bring the case into arbitrage court. If that happens the development of Natuna will be delayed," said Kurtubi, who uses one name like many Indonesians.

"Other companies have no data on Natuna and it will make problems," he added.

Pertamina' upstream director Karen Agustiawan has said the company will keep a 40 percent stake in the Natuna D-Alpha gas project, while 60 percent will be shared among the partners. Pertamina has named eight international oil and gas companies, including Exxon Mobil, Chevron and France's Total, as its potential partners to develop the giant Natuna D-Alpha gas field.

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