Monday, October 16, 2006

Flip Flop on Natuna D-Alpha

In less than one month, government officers made flip-flop and conflicting statements on the status of ExxonMobil & Pertamina's contract to develop the massive gas reserves called Natuna D-Alpha project.

Today, both energy minister Purnomo Yusgiantoro and BPMigas chairman Kardaya Warnika stated that the Natuna PSC had been automatically terminated in January 2005. Few weeks ago, both officers stated that give time to Exxon & Pertamina until January 2007. In between, both guys also stated that Exxon may still operate the gas block but with brand new contract.
On the other hand, ExxonMobil which controls 76% shares in Natuna D-Alpha (Pertamina 24%) insisted that the contract is valid until 2009. (FYI, Pertamina initially owned 50% shares in Natuna D-Alpha. But somehow Pertamina divested 26% few years ago, and nobody raised the question, why? I could understand if the divestment is considered a big mistake, especially with the sky-high energy price in recent years)
Anyway, back to the Natuna legal battle, it's clear that both parties have different interpretation of the contract itself. Article II.2.2 of Natuna PSC amended in 1995 stated that if contractors (Exxon & Natuna) failed to come up with clear commitment before January 2005, the contract shall automatically terminated. Exxon claimed that it's letter dated December 2004 to BPMigas confirming the commitment to develop Natuna has been enough to secure the first two year extension, which means until January 2007. Article II.2.3 also stated that if one of the parties (BPMigas or contractor) asking for extension after the first two year of extension to further confirm the project, it's deemed obliged to approve additional second two-year extension (until 2009).
Government claimed that the contract has not been terminated unilaterally, but automatically. It means, government should provide proofs that contractor (Exxon & Pertamina) failed to meet the requirements in the contract. So far, no such proofs available that legally convincing. But Kardaya seems to believe that government is in strong position even if Exxon challenge that in international arbitrary. People that familiar to oil & gas business doubt though. "It's gonna be the next Karaha Bodas," he said.
What if government think that Indonesia managed to postpone hundreds of million dollar fine of Karaha Bodas case? Well, let's read brand new flip-flop statements in the newspaper in the coming weeks or so.
But the first statements, maturity of contract in 2007, has completely different legal consequences, i.e. government acknowledging Exxon's commitment made in December 2004 and the 2-year extension accordingly. Meanwhile if government claim the contract had been terminated automatically in Jan 2005, it has to come up with proofs to support that and probably a stupid question: Why government said before that the contract would mature in Jan 07? Or another stupid question: What's happened in the last two years? Where are all these guys?
I try to take positive leasons out of this. Suppose that gas price stays the same like 5 years ago, nobody would care about Natuna D-Alpha, because it's just too costly to develop. Now that government want to renegotiate for better terms, that's good. But we have to do it right. Some people try to blame Soeharto or BJ Habibie for the contract given to Exxon. Partly true because we always forget to protect ourselves from future ups-and-downs in contracts with smarter guys. Meaning, we have to learn to be smart in negotiations, articles by articles, paragraph by paragraph, and word by word.

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