Exxon May Delay Cepu Oil Drilling on Rig Scarcity
April 7 (Bloomberg) -- Exxon Mobil Corp. and Indonesia's state oil company PT Pertamina may not drill at the $2.6 billion Cepu project until early next year because of a scarcity of rigs, further delaying production after a four-year ownership dispute.
The operator of the country's biggest untapped oil field failed to obtain any of the four onshore rigs needed, Hestu Bagyo, head of the unit holding Pertamina's stake in the venture, said yesterday. Irving, Texas-based Exxon and Jakarta-based Pertamina ended the ownership dispute on March 15.
A shortage of rigs is limiting the ability of explorers such as Exxon to capitalize on record crude prices. The delay will hamper President Susilo Bambang Yudhoyono's efforts to reverse a 10-year slide in production and safeguard Indonesia's membership of the Organization of Petroleum Exporting Countries.
``It's unfortunate for Indonesia as it was probably looking to Cepu'' to help raise production, said Kurt Barrow, a Singapore-based analyst at energy consultant Purvin & Gertz Inc. ``We are in a boom cycle. Any oil rig with minimum capability is being pressed into service right now.''
A rig shortage hasn't been eased by a 27 percent gain in the number of active oil and gas drilling rigs over the past year. Schlumberger Ltd., Keppel Corp. and rival oil-rig makers have increased profit as demand rises.
``The leasing prices of the rigs have soared,'' Hestu, president director of PT Pertamina EP Cepu, said in a telephone interview. ``We may have to postpone drilling to the end of this year or early next year. We will try not to let this delay affect the production schedule.''
Exxon and Pertamina had planned to start drilling in September at Cepu, the country's biggest untapped oil field that straddles the border of East and Central Java, Iin Arifin Takhyan, vice president of Pertamina, said on March 27.
Exxon and Pertamina expect to produce 25,000 barrels of oil a day in 2009, Hestu said. ``We need to build all the necessary infrastructures including the pipeline system before starting production.''
Drilling at Cepu wasn't scheduled for September, said Maman Budiman, vice president of public affairs of Exxon's Indonesian unit, declining to give the timetable until it is approved by the state oil regulator BPMigas.
It wouldn't be possible to start drilling in September because land acquisitions from local residents are yet to be completed, he said.
Still, ``it is difficult to find rigs,'' Maman said. ``The market is very tight.''
Yudhoyono had pressed for an end to the stand-off between Exxon and Pertamina because the government wanted to stem a decline in oil production.
Indonesia pumped 920,000 barrels of oil a day in March, according to Bloomberg estimates. That's below the OPEC target of 1.45 million barrels a day.
Cepu has an estimated 600 million barrels of oil and 1.7 trillion cubic feet of gas. It may pump as much as 180,000 barrels a day within three years, or about a fifth of the country's current production, Budiono, vice president of Exxon's Indonesian unit, said on March 13.
BPMigas hasn't received a development plan from the partners, Kardaya Warnika, the regulator's chairman, said on a telephone interview.
``We will complete the assessment of the plan within one month,'' before giving approval for drilling to start, Kardaya said. The companies plan to drill 34 wells this year, he said.
Crude oil prices have more than tripled since 2001 and touched a record $70.85 a barrel on Aug. 30 in New York. Oil traded at $67.45 a barrel at 2:28 p.m. Jakarta time.
Worldwide, there were 3,233 oil and gas drilling rigs active in December, the highest on record since January 1986, according to a count by Baker Hughes Inc.
Rig rates have more than doubled and will continue to rise, George Kirkland, executive vice president of exploration and production at Chevron Corp., Indonesia's biggest oil producer, said March 7.
Under last month's agreement, Exxon and Pertamina will form a joint organization to operate Cepu. Exxon will appoint the general manager, operating manager and deputy manager of the new unit, while Pertamina gets to decide on the deputy general manager, deputy operating manager and planning manager.
Under an initial agreement with the government in June, Exxon and Pertamina would each have 45 percent of the venture to develop Cepu, and the local government 10 percent. The venture would get in total between 15 percent and 30 percent of the field's revenue, depending on oil prices, and the central government the balance.
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