State oil firm Pertamina and the worlds biggest oil company this week signed a tentative deal to develop Cepus up to 500mn barrels of reserves, ending four years of deadlocked talks and unveiling a new framework for future investments. The agreement should go some way to restoring the oil industrys faith in Indonesia, whose dwindling reserves, security problems and bureaucracy and corruption have stymied investment, leaving it struggling to stem declining production. “When...the investment goes ahead I think it is going to improve confidence, because investors will see that a strategic project like this has been resolved,” said Chris Newton of the Indonesia Petroleum Association. While ExxonMobil will be glad to finally get access to resources that have been in dispute since their discovery in 2001, the benefits may be greater for Indonesia, where Pertamina has been hobbled by a cash squeeze as rising domestic demand and falling production force greater and more costly imports. The Banyu Urip onshore field in the east central Java Cepu block may eventually pump as much as 180,000 bpd, nearly 20% of the countrys current output. ExxonMobil has estimated the field needs $1.2bn investment and will produce a slightly lower 165,000bpd, starting in 2008 or beyond. Martiono Hadianto, Indonesias chief of negotiator with Exxon, said this week the government has ordered Pertamina to ensure a final deal can be signed in September. “We expect they will propose a plan of development for the project some time next year. We will see the big investment from 2007 in developing the project,” Zanial Achmad, deputy chief of planning at regulator BPMIGAS, told Reuters. ExxonMobil, which also operates the huge Arun gas field, had hoped to begin production within several years of discovering it in 2001, but talks over the production split after its operating contract expires in 2010 prevented any major investment. Jakarta decided last year not to extend the contract, but the government ordered officials to work out a deal in an effort to improve Indonesias investment image and boost oil production. The US oil company said it has spent $450mn on the block, although there has been no commercial output so far. The Cepu block has a tortured history. Pertamina took 51% of it from one of former President Suhartos sons through Humpuss Patragas following an anti-corruption, collusion and nepotism drive in 1998, then offered it to a unit of Mobil. Under the new deal, Exxon and Pertamina will each have a 45% stake in the block, located on Indonesias main island of Java, and the regional government will get 10%. The terms of the deal show Indonesia adopting a more flexible revenue split based on fluctuating oil prices, a response to investors complaints that the traditional 85:15 split was not attractive enough. Under the Cepu deal, the contractors will get 15% when oil prices are above $45, but a rising share of 20% if prices are $40-$45 a barrel, 25% in the $35-$40 range and 30% if oil prices fall below $35 a barrel. PIN/Reuters