Indonesia:Exxon Must Launch Operations Or Face Loss Of Contract

09-05-06 12:01 AM EST

JAKARTA -(Dow Jones)- U.S. oil giant Exxon Mobil Corp. (XOM) must begin development of the Natuna D-Alpha gas block in Indonesia's East Natuna Sea by Jan. 8, 2007, or face termination of the contract, Minister of Energy and Mineral Resources Purnomo Yusgiantoro said Tuesday.

"We will give Exxon until January 8 to launch its contract commitment to develop Natuna," Purnomo told reporters.

Exxon Mobil Indonesia Inc. holds 74% and operates the D-Alpha gas project. Indonesia's state-owned Pertamina (PTM.YY) holds the remaining 26% stake in the gas block.

Purnomo said Exxon Mobil hadn't begun development of the D-Alpha block, without elaborating.

Exxon Mobil spokeswoman Deva Rachman told Dow Jones Newswires the company's production sharing contract with Pertamina stipulated that Exxon had until 2009 to begin tapping Natuna.

"Exxon is currently in discussions with potential buyers to commercialize Natuna resources and continues to believe in its commercial potential," Rachman said.

Exxon Mobil Oil Indonesia Inc.'s president and general manager, Peter J. Coleman, told reporters in December the company was proceeding with a "four-year plan" to get natural gas from the Natuna D-Alpha block to foreign buyers by 2014.

Exxon Mobil has estimated that the block holds 46 trillion cubic feet of recoverable gas reserves.

A potential contractual standoff between Exxon Mobil and the Indonesian government over the development of Natuna would deal a blow to efforts to increase the country's natural gas exports while prices hover around record highs.

A disagreement over Natuna just months after Indonesia and Exxon Mobil signed a long-stalled agreement to tap East Java's massive Cepu oil block would also likely reinforce foreign investors' concerns about the potential perils of investment in the country's oil and gas sector.

Those concerns have stifled investment in the sector and have helped relegate Indonesia, East Asia's sole member of the Organization of Petroleum Exporting Countries, to the status of a net crude oil importer.

-By Deden Sudrajat; Dow Jones Newswires

-Edited by George Bernard
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