ExxonMobil Agrees to Talks with Indonesia on Natuna Ops

Dow Jones Newswires

JAKARTA Nov 2, 2006 (Dow Jones Newswires)

U.S. oil giant Exxon Mobil Corp. (XOM) Thursday said it has agreed to hold talks with the Indonesian government to resolve a dispute about the validity of the firm's contractual right to develop the Natuna D-Alpha gas block.

Exxon Mobil has agreed to the talks despite the company's belief that its production sharing contract for Natuna "remains valid", an Exxon statement said, citing ExxonMobil Oil Indonesia Inc. communications manager Deva Rachman.

"Exxon Mobil has agreed to enter mutually beneficial discussions (and) we expect these discussion to occur over the next several months," the statement said.

"We will continue to progress our technical and marketing activities (for Natuna) during this time."

The discussions might result in changes in the previous contract between Exxon Mobil and the Indonesian government, Rachman indicated to Dow Jones Newswires, without further elaboration.

Indonesia's Minister of Energy and Mineral Resource Purnomo Yusgiantoro told reporters that he'd heard about Exxon Mobil's decision and would report it to the cabinet, without elaborating.

Any decision to reopen Natuna contract negotiations with Exxon Mobil would hinge on agreement by the cabinet of President Susilo Bambang Yudhoyono, Purnomo said earlier Thursday on the sidelines of an infrastructure investment conference in Jakarta.

The government's other options for Natuna's development include re-tendering the production sharing contract for a new round of bids, or handing over the block to state-owned Pertamina (PTM.YY), Purnomo said, without further details.

Exxon's decision to go back to the negotiation table with the government marks a climb-down for the company after weeks of denial of government assertions that the firm's Natuna contract had expired or been terminated.

Indonesia's Vice President Jusuf Kalla earlier Thursday reiterated that Exxon Mobil's contract had "automatically terminated" due to a lack of activity on Natuna over the past 20 years.

Exxon Mobil has insisted that it has the contractual right to continue development of the Natuna block until 2008 or 2009. The firm estimates Natuna holds 46 trillion cubic feet of recoverable natural gas reserves.

In December, Exxon Mobil Indonesia Inc.'s President and General Manager Peter J. Coleman told reporters the company was proceeding with a "four-year plan" to deliver natural gas from the Natuna D-Alpha block to foreign buyers by 2014.

But in October, both Purnomo and the chairman of the official upstream oil and gas regulator BPMigas, Kardaya Warnika, announced that the Exxon Mobil contractual right to develop Natuna was no longer valid.

The Natuna spat has unsettling echoes of the lengthy disagreement between Exxon Mobil and Pertamina over a joint operating contract to tap the massive Cepu block in East Java. Prior to its resolution in March, the dispute had become a symbol among foreign investors and analysts of the perils of contract enforcement in Indonesia.

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