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JAKARTA - Indonesia has terminated a contract held by Exxon Mobil Corp. on the huge Natuna offshore gas field, the country's oil minister said on Tuesday, amid high extraction costs and a lack of buyers for the gas. Despite the difficulties developing the field, the move to end Exxon'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 (tcf) of gas, of which 46 tcf is thought to be commercially recoverable, but the field contains about 70 percent 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 reporters.
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 firm 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 time until January to check out," Purnomo said when asked about his comments last month.
Indonesia and Exxon Mobil 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. Exxon Mobil officials could not immediately be reached for comment.
Exxon Mobil has a 76 percent stake in D-Alpha while Indonesian state energy firm Pertamina has 24 percent. The gas in Natuna D-Alpha, about 1,100 km (680 miles) north of capital Jakarta and 200 km east of the West Natuna fields that are currently feeding gas to Singapore, accounts for about 25 percent of Indonesia's total gas reserves of 182 tcf.
Asia Pacific's sole OPEC member has far more gas than oil, and is trying to phase out costly oil-fired power generation and uses more of its cheaper, cleaner natural gas domestically. But the country faces limited supplies due to long-term LNG export commitments, which it is reviewing. Exxon has several oil and gas working areas in Indonesia, but has sporadically faced problems in the country.
Analysts had said Pertamina was unlikely to terminate the Natuna contract so soon after a five-year row with Exxon 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.
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