SINGAPORE Feb.7, 2007 (Dow Jones Newswires)
Exxon Mobil Corp. (XOM) is looking to extract its first crude oil from Indonesia's giant Cepu field ahead of the official 2009 schedule for production.
Such a development could put an end to years of delays, bumping up long-term output from a member of the Organization of Petroleum Exporting Countries and delivering results for the U.S. oil major, which has been frustrated in recent times by the country's red tape.
"We've been talking to the government about this separate production," which could come one to two years early, said Steven Greenlee, Exxon Mobil's vice-president for Asia.
"And we're already in 2007," he told Dow Jones Newswires in an interview Tuesday on the sidelines of an exploration and production conference in Singapore.
Cepu - Indonesia's largest oil discovery in three decades - was most recently earmarked to enter commercial operations in the first quarter of 2009, from an earlier timetable of 2008.
Last December, an official at oil and gas regulator BPMigas hinted at an initial flow rate of 25,000 barrels a day, which would be modest by global standards.
While Greenlee wasn't able to provide an output estimate for any fast-track development at Cepu, the field's commercial potential hasn't been lost on industry analysts and investors.
Cepu, straddling the border of central and east Java, is estimated to contain around 600 million barrels of crude and 1.7 trillion cubic feet of natural gas.
This is about all the oil reserves held by neighboring Thailand and nearly half its gas potential.
No Smooth Sailing
Indonesia, Asia's only OPEC member but a net oil importer since 2004, hasn't been an easy investment destination for Exxon Mobil, the world's largest listed energy firm by market capitalization.
Prior to last March, when it reached an agreement with state-owned PT Pertamina (PTM.YY) to jointly operate Cepu, the dispute became a symbol among foreign investors and analysts of the uncertainties of contract enforcement in Indonesia.
Separately, the Houston-based company has also been embroiled in a disagreement with Jakarta over the status of a contract to develop the offshore Natuna D-Alpha block, which is estimated to contain 46 trillion cubic feet of gas.
Even smaller upstream companies tapping into Indonesia's energy potential have had their fair share of public relations nightmares.
Australian oil and gas producer Santos Ltd. (STO.AU) last month was reported in local media as being liable for a IDR3.8 trillion claim by the government over an environmental disaster near a drilling site in East Java.
Following a May 2006 accident, hot mud has been spewing from around Banjar Panji at a rate of about 150,000 cubic meters a day, swallowing entire villages and leaving thousands homeless.
The Adelaide-based company, which holds an 18% interest in the project, has said it's seeking an official clarification.
Any Volume Will Do
For Indonesia, any early startup at Cepu - Exxon Mobil bought the rights to the field back in 1998 - will present the government a second chance at wooing back investors.
With older fields going into natural decline, production growth has stagnated, partly because of a lack of new funds being pumped into upstream projects in the years after the Asian economic crisis.
Jakarta, with its eye on keeping domestic fuel prices affordable, has focused its recent efforts on the downstream sector instead, breaking up Pertamina's monopoly in the retail market in 2004.
Greenlee said oil production at Cepu is targeted to peak at 170,000 b/d, which will boost current output in the country by nearly a fifth.
Last month, Indonesia pumped nearly 860,000 b/d of crude and 118,000 b/d of condensate, industry sources told Dow Jones Newswires.
Greenlee wouldn't be drawn into predicting when an early Cepu start may be finalized, but said "we're talking to the Indonesian government every day."
Under the March 2006 joint operation agreement, Exxon Mobil and Pertamina will each hold a 45% stake in Cepu, with the remaining 10% going to the provincial governments in East and Central Java.
Exxon Mobil last Thursday posted its highest annual profit ever of US$39.1 billion for 2006.
The company ramped up its production by 4% on year to 4.24 million b/d, mainly on the back of project startups in Russia, the Middle East and West Africa.
Copyright (c) 2007 Dow Jones & Company, Inc.
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