Victor Tjahjadi, Jakarta – Indonesia has terminated a contract with ExxonMobil Corp to drill a major offshore gas field in the Natuna Sea off the west coast of Borneo, in a move that may alarm foreign investors.
ExxonMobil however said that the contract stood firm as it was extendable and they were still working to develop the field.
The potential spat could heighten concern among foreign investors about the perils of doing business in Southeast Asia's largest economy, which is set to hold a summit offering infrastructure projects to foreigners next month.
Energy minister Purnomo Yusgiantoro said late Tuesday that Exxon had failed to submit a plan for developing the block and selling the gas, which has a high ratio of carbon dioxide so is difficult to extract, to the regulator. "So the contract was automatically terminated," Yusgiantoro told reporters.
He said Exxon, which had a 76 percent stake in the Natuna D-Alpha block, had mistakenly thought the contract had been extended until 2009. Yusgiantoro said that state oil and gas firm PT Pertamina might now be first in line to operate the block. The company holds the rest of the share in the block.
Pertamina chief executive Ari H. Soemarno said that the state firm would still like to explore it. "If Pertamina does not continue exploration of that block, the money we have invested will be gone," he was quoted as saying by Bisnis Indonesia.
But a spokeswoman for the local unit of Exxon Deva Rachman said that based on a contract signed with the government in December 2004, Exxon could extend the contract twice – each for a period of two years – from 2005.
"There is a clause in the contract stipulating that we could extend the contract twice," she told AFP. "What we are pursuing to do now, based on that clause, is to maximise all possible conditions in order to further develop the Natuna D-Alpha field, which has a complex composition of gas reserves," Rachman said.
She said Exxon had so far spent more than 350 million dollars exploring the block. Exploration by the Texas-based firm and the government began in 1980 and the field is estimated to hold 46 trillion cubic feet of recoverable gas.
Oil and gas industry analyst, Kurtubi who heads the independent Center for Petroleum and Energy Economic Studies in Jakarta, said he believed a new contract would be negotiated between the two sides.
"I am almost sure that the government would most welcome a contract extension if ExxonMobil can work on one and quickly resume exploration there," he told AFP. "What's important for the government now is that they start earning income by developing its natural resources," he said.
Kurtubi said that the termination of the contract was "more of a warning by the government for foreign oil investors who have signed contracts with the government to fulfill their obligations."
The disagreement follows the resolution in March of a four-year dispute between ExxonMobil and Pertamina over the joint operation of the Cepu oil field.
Concern among foreign investors over involvement in oil and gas projects in Indonesia, Southeast Asia's only member of the Organisation of Petroleum Exporting Countries ( OPEC), has been a factor in the country becoming a net oil importer in recent years.