Indonesia Proposes Joint Venture with ExxonMobil for Cepu

The Indonesia oil ministry has proposed a 50:50 joint venture with ExxonMobil to develop the Cepu Field. Pertamina plans to raise money from bond issuances and other sources to help fund part of the field's development costs, Energy Minister Purnomo Yusgiantoro said. "Pertamina will put some money into Cepu's development," he said. ExxonMobil did not comment on the joint venture proposal.

Cepu has become a source of contention between ExxonMobil, which has a contract to develop the field until 2010, and local politicians who want Pertamina to take control.

ExxonMobil has discovered 600 million barrels of proven crude reserves since it won a 10-year contract from Pertamina in 2000 to develop the field on the border between East and Central Java. ExxonMobil says it has spent $400 million on the site so far and is willing to invest a further $2.6 billion to bring the field to production, but will only do so if the government extends its contract.

Negotiations have stalled over Pertamina's claim for a half share in the project. ExxonMobil has said it's willing to accede to Pertamina's demands, but only if the state-owned company puts in half the development costs.

Pertamina spent nearly 30 years searching Cepu without making any major finds. After a series of different owners, ExxonMobil began exploring in 2000 using deep-drilling equipment that led them to discover major oil reserves. Pertamina claims ExxonMobil concealed important information about Cepu before the current contract was signed.

ExxonMobil's discovery of the Cepu reserves are significant for Indonesia, which risks becoming a net importer of crude due to slow development of new projects. The country currently has about 5.1 billion barrels in total proven reserves, probably enough to last about 10 more years, according to industry estimates.