Indonesia VP: Agree to Talk with Exxon on Natuna Ops

JAKARTA, Nov 10, 2006 (Dow Jones Newswires)

The Indonesian government has agreed to renegotiate with Exxon Mobil Corp. (XOM) on a new contract to develop a massive natural gas deposit in the Natuna D-Alpha block, Vice President Jusuf Kalla said Friday.

Kalla told reporters the government will seek to change the revenue-sharing terms of the old contract, which it has unilaterally claimed to have expired.

"The terms must bring the most benefit for Indonesia," Kalla said.

Exxon holds a 76% stake in the block and state-owned PT Pertamina (PTM.YY) the remaining 24%.

The revenue split under the old contract is zero percent for the government and 100% for the contractor, due to the high carbon contained in the gas. Nevertheless, more than 50% of the revenue from the block will go back to the government in the form of taxes, production bonus and net gas revenues, Exxon has said.

Kalla's comments mean the government has chosen the most amicable approach out of three options it had listed. The other two are to tender the block to any company, or give the block, which is estimated to hold 46 trillion cubic feet of recoverable natural gas reserves, to Pertamina.

Exxon Mobil decided earlier this month to return to the negotiation table with the government, marking a climb-down for the company after weeks of denial of government assertions that the firm's Natuna contract had expired or been terminated.

Kalla had earlier this month 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 been insisting that it has the contractual right to continue development of the Natuna block until 2008 or 2009.

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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