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January 13, 2009

Indonesia: Govt says Exxon’s rights in Natuna terminated since 2005
Indonesian government has said ExxonMobil’s right to develop the Natuna-D Alpha block has expired since 2005, setting the stage for a showdown with the US energy giant.

“The contract has been terminated since 2005. We have tried to negotiate with them, but the process hit deadlock,” Energy and Mineral Resources Ministry Purnomo Yusgiantoro was quoted by The Jakarta Post as telling reporters on Monday.

Located in Riau Islands, the Natuna D-Alpha block is estimated to contain 46 trillion cubic feet of gas, making it the biggest gas reserve in Asia.

The US energy company insisting on maintaining its rights over the gas-rich block.

ExxonMobil’s contract to develop the block, Asia’s biggest gas reserve site, has just expired, but the company insisted its contract remained valid after submitting to the government plans of development (POD) late last year for developing the block, paving the way for an extension.

“We are not late, so our production sharing contract in the block remains in full force,” spokeperson Maman Budiman said January 9.

The government’s stance should provide enough leeway for state oil and gas company PT Pertamina to take the lead in developing the block.

The government in a Cabinet meeting decision last year, ordered Pertamina to take over the development of the block and to seek partners because the required investment for the block would need at least $52 billion.

But all the while, Exxon had said it was the rightful operator of the block.

Before the contract dispute erupted, ExxonMobil held a 74 percent participating interest in the block, while Pertamina owned the remaining 26 percent.

Pertamina has repeatedly questioned the status of ExxonMobil in relation to the block, hindering Pertamina’s efforts to get involved in tapping the gas reserves, estimated at about 46 trillion cubic feet.

It has also however short listed a group of companies, including Exxon, from which it will likely pick one or more partners to help develop the block.

Pertamina will not hesitate to work with ExxonMobil, with Pertamina president director Ari H. Soemarno saying: “We are open to partner with ExxonMobil. They are now included in the eight short listed potential partners.”

Upstream oil and gas regulator BPMigas said it would not review  ExxonMobil’s plans of development for the block, because it had been terminated.

“They failed to fulfill the block development commitment. Thus, the contract was terminated in 2005,” BPMigas’s chairman R. Priyono said.

Purnomo said the government would give its official response on ExxonMobil’s plan of development in a press conference to be held later this week.

The government has a history of disputes with ExxonMobil. It was engaged in a four-year battle with the company over the operatorship of the Cepu block, which contains huge oil reserves.

ExxonMobil was the eventual winner, as it became the operator of the block located at the borders of Central Java and East Java provinces.

A termination of the ExxonMobil Natuna contract would risk the government being brought before an international arbitration court.

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