Tuesday, February 21, 2006

Purnomo turns down Pertamina's proposal, Exxon's victory

ExxonMobil will likely win the year-long battle over state-owned oil and gas company PT Pertamina for the right to operate the giant Cepu oil field.
Energy minister Purnomo Yusgiantoro has turned down Pertamina's proposal to apply rotating system in the operation of Cepu Block, Indonesia's largest oil discovery in decades.
"I've been working in the oil business for almost 20 years and it's impossible to drill rotatingly every five years," he said as quoted by Detik.com today.
While Purnomo didn't directly mention ExxonMobil, he reiterated government's stance that the most prepared company, especially from financial resources perspective, should operate the block.
At the current exchange rate of Rp9,200 per US$, total investment needed for the block is expected at Rp20 trillion to Rp25 trillion. "How we could raise the funding?"
The former OPEC president admits that the cost to operate Cepu block would be expensive. This is another indirect support for Exxon as many times Pertamina warned government of Exxon's high cost that would translate to higher cost that should be recovered by government.
"Exxon promised the costs won't be expensive as we have the benchmark already," Purnomo said.
Technology transfer was considered an important factor as well. If both companies failed to reach agreement on operatorship issue this week, Purnomo said government will takeover the settlement.
"We had asked them, Pertamina said it's ready, Exxon too...but whatever the government will decide, sweet or sour, Exxon and Pertamina should accept. We can't afford to let this situation goes on as too much loses at stake."
Pertamina and ExxonMobil have been locked in a battle over who is entitled to be the operator of the block in which they equally own by 45% and is considered crucial to boost the country's declining oil output in the last eight years. The block could produce up to 200,000 barrel per day during peak production, about 20% increase from the Indonesia's current at slightly below 1 million barrel per day.
The Jakarta Post wrote on Monday Vice President Jusuf Kalla's visit to Cepu on Saturday may indicate a preference for ExxonMobil on operatorship issue.
Kalla was accompanied by coordinating minister for the economy Boediono, finance minister Sri Mulyani Indrawati, state-owned enterprises minister Sugiharto, energy minister Purnomo Yusgiantoro, industry minister Fahmi Idris, chairman of national development planning agency (Bappenas) Paskah Suzetta, Vice President Director of Pertamina Mustiko Saleh, and President of ExxonMobil Oil Indonesia Peter J. Coleman.
Pertamina president director Widya Purnama, surprisingly, wasn't there. Widya repeatedly saying that he would resign if Exxon win the operatorship.
"The Cepu operator should have cutting-edge technology, strong financial resources, and efficient operation. Since the issue of operatorship is not that significant, I hope you can reach a deal sooner than later," Kalla told executives of Pertamina and ExxonMobil.
Pertamina comes up short on these requirements, with less advanced oil exploration technology and lower financial resources than ExxonMobil, who began operations in the late 19th century, The Jakarta Post wrote.
When Pertamina raised the issue of higher costs in an Exxon-run exploration, the US giant quickly rebuff saying it's proposed cost at US$4.5 million per well is similar to Mudi well drilled by PetroChina in East Java.
Expert staff at the coordinating minister for the economy Muhammad Ikhsan responded fiercely saying, "if Pertamina's cost is lower, it should have surpassed Petronas already."
Quoted by Detik.com few minutes ago, Ikhsan said Pertamina simply can't operate Cepu as it has no money. "They still owe the government Rp17 trillion (almost US$1.9 billion), how they would finance the project," he asked.
Worse, Ikhsan said, Pertamina yet to have financial report that would make it difficult to raise funds in international market. Exxon, according to Ikhsan, has the capability to operate the block.
Well, if he deliver his promises to resign, an Exxon operatorship would finally bring an end to Widya's one and half year at the helm of Pertamina, right Pak Widya?

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