Breaking the news: Purnomo Yusgiantoro
Jakarta tears up Natuna D-Alpha deal
Indonesia's Oil Minister Purnomo Yusgiantoro said today that ExxonMobil's contract for the Natuna offshore gas field has expired, adding that high extraction costs and a lack of buyers for the gas had tolled the death knell for the deal.
Despite the difficulties developing the field, the move to end ExxonMobil's contract may cause concern among foreign investors about uncertainties of doing business in Indonesia, compounding worries over the legal system, labour and corruption.
The Natuna D-Alpha block contains around 222 trillion cubic feet of gas, of which 46 Tcf is thought to be commercially recoverable, but the field contains about 70% carbon dioxide, making it expensive to develop and difficult to sell.
"We are working to clear legal procedures but it is clear that the contract has expired," Minister Purnomo Yusgiantoro told Reuters.
He said the government had asked the country's oil watchdog BPMigas to examine the next course of action after the termination of the contract.
"The government could give privileges to state oil company Pertamina on this block. But we are still in discussions," Purnomo said.
Last month, he said the government could take over the block in January.
"We will give them (ExxonMobil) time until January to check out," Purnomo said when asked about his comments last month.
Indonesia and ExxonMobil signed a basic agreement in 1995 covering an estimated $40 billion to be invested in the offshore gas project in the South China Sea. However, tapping the reserves has proved difficult.
Analysts have said the cost of capturing and storing carbon dioxide was very expensive with current technology.
ExxonMobil officials could not immediately be reached for comment.
Exxon Mobil has a 76% stake in D-Alpha while Indonesia's Pertamina has 24%.
The gas in Natuna D-Alpha, about 1100 kilometres north of capital Jakarta and 200 kilometres east of the West Natuna fields that are currently feeding gas to Singapore, accounts for about 25% of Indonesia's total gas reserves of 182 Tcf.
Analysts had said Pertamina was unlikely to terminate the Natuna contract so soon after a five-year row with ExxonMobil over operating the $2.6 billion Cepu oilfield, which was resolved in March.
Indonesia has said it will favour domestic gas sales after major export contracts to Japan lapse at the end of the decade.