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Controversy over ExxonMobil Contract on Natuna Ends after Obama's Visit

JAKARTA LIFE'S STYLE

State oil company PT Pertamina eventually chose ExxonMobil of the United States as partner to develop Natuna (D-Alpha) gas field in the South China Sea, one of the world’s biggest gas fields. Actually the announcement came as no surprise to some people who knew about the deal. Despite the much noise, ExxonMobil had it all to be calculated by the Indonesian government: money, expertise, experience, technology and the geo-political clout, they say.

Pertamina and ExxonMobil have signed a head of agreement (HoA) to jointly develop the field, believed to hold at least 45 trillion cubic feet, on 3 December to formalize their joint operation. This historic event came 37 years after Agip Oil of Italy first discovered it in 1973.

The field has also been renamed East Natuna, its geographical location, the eastern part of the Natuna islands, Riau province. It lies 225 km (140 miles) east of Natuna island and about 600 km (375 miles) northeast of Singapore, in a depth of 145 meters (475 feet).

Energy and Natural Resources Minister Darwin Saleh who witnessed the signing, said ExxonMobil had been chosen through a selection by Pertamina. Nevertheless, he added rather vaguely that "new partners may also get on board in accordance with the short ongoing listing process."

He added that the change of the name from Natuna (D-Alpha) to East Natuna will be coupled with a more "contextual" contract. In follow up to the signing of the head of agreement, both companies will discuss details of the project’s commercial aspects.

The minister made it clear that the gas exploited from Natuna will be for the Indonesian market by taking into account the economic aspect of the cooperation as the joint venture will involve huge investment and high technology. This eliminated previous statements that the gas would be exported.

The change of the name from Natuna (D-Alpha) to East Natuna had something to do with expiry of the contract and because the geographic location of the field is in the eastern part of Natuna islands, according to the Oil and Gas Director General of the Energy and Natural Resources Ministry.

The president of Asia Pacific Middle East ExxonMobil Exploration, Mike Cousins, told the media later that the signing is the first phase toward commercializing oil and gas in Natuna. He said his party will wait for the next phase of negotiations with Pertamina and the government to maximize the development of Natuna.

He expected that a cooperation contract on exploiting gas from East Natuna with Pertamina will have been signed within the next six months. The Indonesian government appointed Pertamina to develop East Natuna through Energy and Natural Resources Ministry’s letter no 3588/11/MEM/2008 dated on June 2, 2008 on the status of Natuna (D-Alpha) gas.

Based on this formality, Pertamina had sought partners to jointly develop the field. Based on studies by Edinburgh-based energy consultant Wood McKenzie that contracted by Pertamina, there were eight oil and gas multinational corporations deemed suitable as future partners of Pertamina for the project estimated to need an investment of at least 52 billion US dollars.

The eight companies were ExxonMobil Corporation, Royal Dutch Shell Plc, Total SA, Chevron Corp, StatOil, China National Petroleum Corp (CNPC), Petroliam Nasional Berhad (Petronas), and Eni SpA. CNPC then withdrew from the candidacy.

Over 30 years

Exxon Production Research Company in a seminar document estimated that the gas reservoir at East Natuna is able to maintain production for 30 years or more. New wells were drilled in the crest of the AL-Structure in 1973 by AGIP that found about 5,250 feet of porous, gas-bearing carbon.

The total volume of gas in the reservoir is estimated to be 222 Tscf. Some 71 percent consisted of carbon dioxide, 28 percent methane plus heavier hydrocarbons, 0.5 percent hydrogen sulphide and 0.5 percent nitrogen. The gas recovered from the field is about 75 percent which would yield 46 Tscf of recoverable hydrocarbon gas.

A development plan had been conducted to determine production wells, production well drilling schedules, the total number of wells required, the timing for the installation of wellhead compression equipment and gas production profile for the field as a function of time. The Natuna gas reservoir had been thought to be an isolated, dome-shaped carbonate build-up structure (carbonate platform and reef complex) approximately 15 miles long and 9 miles wide.

Controversy

East Natuna has been little explored over the past many years after its discovery, due to political disruption, its remoteness and discoveries such as Exxon had been proved to be uneconomic to develop. Reservations in the region are in the Middle to Late Miocene reefs, underlain and overlain by deltaic sediments, according to off-shore-technology, a media of offshore oil and gas industry.

In 1980, 50-50 venture in Natuna D-Alpha area, East Natuna, between Pertamina and Exxon Mobil Corp of the US, didn’t result in production. The very high CO2 content also made extraction from the huge 1.3-trillion-cubic-metre area very costly and development is difficult.

Despite Exxon’s 400 million US dollars and Pertamina’s 60 million US dollars investment spent over the period, the Indonesian Government terminated its contract with Exxon in 2007 leaving Pertamina in charge. The government even had pressed Pertamina to move ahead on its own, something made it stood against the wall.

"There is no need for Pertamina to cast doubt on the exploitation right of the gas field," Energy and Natural Resources Minister Purnomo Yusgiantoro said about the controversy over the right to develop it at the time. A special cabinet meeting chaired by President Susilo Bambang Yudhoyono decided Pertamina to carry out a feasibility study for the exploitation.

Controversy continued, however, over the right to develop the block with ExxonMobil saying it still owned it. In 2005, Indonesia terminated the contract because after it had run for 20 years with the American company still unable to concretely develop the block, leaving the government to keep grumbling.

The Indonesian government made the decision after negotiations with ExxonMobil failed. Under the old contract, ExxonMobil controlled 76 percent of the shares and Pertamina the remaining 24 percent, but the production sharing ratio was deemed unfair as ExxonMobil got 100 percent and the government nil percent.

Yusgiantoro said the contract between the government and ExxonMobil expired on January 9, 2005. Under the contract, ExxonMobil was required to submit a commitment plan to continue the development of the Natuna gas field before January 9, 2005 and required to enclose a feasibility study on commercial viability considerations between Upstream Oil and Gas Regulator BP Migas ExxonMobil.

Yusgiantoro said ExxonMobil had submitted a letter of commitment before January 9, 2005 but it did not enclose a feasibility study as a condition to obtain the commercial viability status. But the American oil company had been adamant until as recently as 2009 it was still the legal holder of the contract.

However, last week’s signing of the HoA has terminated the controversy, less than a month after the visit of President Barack Obama to Jakarta.

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