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Financial Times: Jakarta to seize gas field in Exxon dispute

By John Aglionby in Jakarta
Published: February 20 2008 00:16 | Last updated: February 20 2008 00:16

Indonesia on Tuesday said it would seize Asia’s largest undeveloped gas block from ExxonMobil and ask Pertamina, the state-owned energy group, to prepare a feasibility study to take over the field.

The latest move in a three-year dispute between Jakarta and the US energy group was made after talks with Exxon about the Natuna D-Alpha field became deadlocked over tax issues, the extension of a contract and how to split the gas, said Purnomo Yus­giantoro, Indonesia’s energy minister.

Natuna is one of the biggest investments in the oil and gas sector in Indonesia, which desperately needs foreign investment to reduce unemployment levels and spur economic growth.

The block, which accounts for about a quarter of Indonesia’s recoverable gas reserves, is estimated to need investment of about $30bn (€21bn, £15.4bn). Some 70 per cent of the gas is carbon dioxide, which has no commercial value and makes recovery difficult.

Ari Soemarno, Pertamina’s president, said the company would submit a feasibility study within three weeks of receiving official notification of the government’s decision.

However, Pertamina cannot develop the field by itself because it does not have the necessary levels of investment or technology and is expected to offer 50 per cent of the equity in the field to a strategic partner.

Exxon could yet end up working with Pertamina as that partner. Other possible contenders are thought to include BP, Royal Dutch Shell, Statoil of Norway and Petronas of Malaysia.

In 2005, the Indonesian government ruled that Exxon’s contract had expired after it failed to develop the field. Exxon maintains that its contract expires in 2009 but agreed in 2006 to renegotiate.

Under the terms of the original contract, the government was due to receive 35 per cent of the revenues. However, the state regulator has said Jakarta wants to increase that to 65 per cent. Exxon has rejected the proposal.

Exxon said on Tuesday it expected talks with the government to continue.

Indonesia’s decision comes a week after it announced it would terminate a contract on February 22 with a local subsidiary of Newmont Mining, the US company, for allegedly defaulting on its obligation to divest shares to a local entity.

Newmont believes it has not violated the contract. Its board is expected to decide on Thursday whether to pursue international arbitration to resolve the matter.

Until early 2006, Pertamina and Exxon were in dispute for four years over the $2bn Cepu oil block.

Copyright The Financial Times Limited 2008

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