Exxon vs Pertamina

International pressure, including from US President George Bush, is working well on ExxonMobil’s years of dispute with Indonesian government and Pertamina (state-owned oil and gas company).

Both parties resumed negotiation yesterday and an agreement is expected to be reached by May 20, right before President Susilo Bambang Yudhoyono's visit to Washington in late May. Despite pressures from local politicians to have ExxonMobil completely out of Cepu Block, the rich oil and gas fields onshore Central Java, a win-win solution is searched.

It was Bush, at the sidelines of APEC Summit in Santiago, Chile last year, who reminded Indonesia President Susilo Bambang Yudhoyono (SBY) on the dispute. As admitted by Sudi Silalahi, cabinet secretary, SBY then responded with instruction to his ministers to settle the issue.

And now, we have political analyst Rizal Malarangeng, brother of Andy Malarangeng (President SBY’s spoke person), as spoke person for Pertamina (state-owned oil and gas company) regarding negotiation with ExxonMobil on Cepu Oilfield in Central Java.

While it’s not a surprise, we don’t know exactly how Rizal (Ohio State University graduate) been appointed and who were the candidates for the job. Was it direct appointment from Chief Economic Minister Aburizal Bakrie? Was it by Pertamina’s board of director?

Two months ago, Freedom Institute, where Rizal is the director, was criticized for its support for government’s policy to raise fuel price. Freedom Institute is fully funded by Aburizal Bakrie, long before his appointment as minister by SBY.

After the fuel price, Rizal is dealing with Cepu Block, one of the largest oil and gas project in Indonesia. The block has 2 billion barrel of oil and 11 trillion cubic feet (TCF). It could be the second largest oil field after Duri, Riau province run by PT Caltex Pacific Indonesia (subsidiary of Chevron Texaco).

Rizal said a win-win solution on the dispute will lure in new investment up to US$3 billion. But he declined to disclose details of Pertamina’s offer.

Exploration license is the core of dispute between ExxonMobil and Indonesian government. Tommy Soeharto, son of former president Soeharto, once owned shares in the block but then sold its stakes to Exxon after failure to discover oil.

In early 2001, Exxon surprised Indonesian government with its announcement of huge oil and gas discovery in the block, which then triggered the dispute. In contrast with other oil exploration contract, the Cepu Block is under technical assistance contract supervised by Pertamina. The problem is the contract will expire 2010.

Pertamina insisted that it could operate the block without ExxonMobil after the license expired. Meanwhile Exxon, though agreed to share the fields with Pertamina, demands extension of the contract until 2030.

Exxon's request for a 20-year extension of its right to 20 percent of any oil produced from Cepu, was refused by the government in 2003. Recently, Indonesian parliament (DPR) also supported Pertamina to develop the fields without Exxon.

But during the process, there were conflicting interests in Indonesian side, since they open the door for new investor to work with Pertamina.

One of the most interesting names is PetroChina, a China company that aggressive in acquiring oil and gas field in Indonesia. US and China is competing fiercely in Indonesian oil and gas industry. Just last month, Unocal (the third largest gas producer in Indonesia) took Chevron’s (the largest oil producer in Indonesia) US$18 billion bid to control the company.

Under pressure to lure in more oil and gas investment, Indonesian government pushed Pertamina to resume negotiation with Exxon. According to Rizal, the negotiation resumed yesterday with targeted completion by May 20, 2005.

Exxon Mobil offered Pertamina 10 percent, but Pertamina asked for 35 percent, and then 50 percent, arguing that Tommy had forced it to sell in the first place. Exxon Mobil agreed to sell 50 percent of its current contract to Pertamina for half of its development costs, which it estimated at $450 million. Pertamina accused Exxon Mobil of inflating the figure.

Faced with the prospect of losing Cepu entirely, Exxon Mobil has agreed to negotiate a new contract, a 50-50 joint venture with Pertamina, to take over when the current contract expires.

During the process, there were conflicting interests in Indonesian side, since they open the door for new investor to work with Pertamina.

One of the most interesting names is PetroChina, a China company that aggressive in acquiring oil and gas field in Indonesia. US and China is competing fiercely in Indonesian oil and gas industry. Just last month, Unocal (the third largest gas producer in Indonesia) accepted Chevron’s (the largest oil producer in Indonesia) US$18 billion bid to control the company.

Should ExxonMobil and Pertamina settle the dispute, US companies will maintain their control on Indonesian oil and gas resources, especially with depleting gas reserves in Exxon's Aceh operation and a possible closure of the fields next decade.

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