Pertamina CEO: Exxon Indonesia Cepu Ops Deal Talks Stall

Indonesia's state-owned petroleum firm Pertamina (PTM.YY) said Friday that talks have stalled with U.S. oil giant Exxon Mobil Corp. (XOM) on finalizing a crucial joint operating deal for East Java's massive Cepu oil block.

The talks have stalled because Exxon insists on being the Cepu block's sole operator for the 30-year duration of the contract while Pertamina wants to operate the block for the first five years of operations, Pertamina's Chief Executive Officer Widya Purnama told reporters.

"Several meetings with Exxon have failed to produce results and always met deadlock," Purnama said.

"I will refuse to meet (with Exxon officials) again as (previous meetings) always end in deadlock."

Purnama said Pertamina will ask Indonesia's President Susilo Bambang Yudhoyono to intervene in the dispute.

"(Yudhoyono) was the one who wanted a joint-operation for Cepu," Purnama said, without elaborating.

Meanwhile, Exxon's Jakarta-based spokeswoman Deva Rachman told Dow Jones Newswires that the U.S. oil major "remains hopeful that negotiations can resolve (the problems) as soon as possible."

The Cepu negotiations deadlock follows Pertamina and Exxon's successful completion of a Cepu production sharing contract in September.

That agreement committed the Indonesian government to give Exxon 6.75% of Cepu's revenues if world oil prices are above $45 a barrel and 9% of revenues if prices are between $40/bbl and $45/bbl.

Exxon Southeast Asia/Pacific Vice President Stephen Greenlee told reporters at the September signing ceremony that the firm wanted a joint operating deal "as soon as possible" but said there was no deadline for a deal.

The failure of the two sides to reach an agreement is bad news for Indonesia's efforts to increase oil production, which has faltered in recent years due to a lack of investment in oil exploration and extraction.

Petroleum sector investors have fled Indonesia in recent years, complaining about shambolic infrastructure levels, rampant corruption and perceptions of an unpredictable judiciary.

That lack of investment has forced Indonesia, Southeast Asia's sole member of the Organization of Petroleum Exporting Countries, to become a net crude oil importer for several months in 2004.

Cepu, which contains estimated reserves of some 600 million barrels of crude oil, has the potential to rejuvenate Indonesia's oil production operations. But Pertamina and Exxon's inability to cut a deal after months of negotiations is likely to remind potential investors of the difficulties of the Indonesian investment environment.

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