Exxon will need $1.3 bln for full capacity at Cepu-BPMigas

* ExxonMobil says Cepu moving into full development phase

* U.S. major inks $746.3 mln engineering procurement deal

* ExxonMobil expected to award 4 other contracts before year-end 

Exxon Mobil Corp and its partners must invest $1.3 billion at the giant Cepu block if it aims to achieve full output capacity, Indonesia's oil and gas watchdog said, as the U.S. energy major tries to expedite crude recovery. 

The investment will be needed to build five construction facilities to enable the onshore oil block in Java, Indonesia's biggest oil find in over a decade, to reach peak production of 165,000 barrels per day (bpd), R. Priyono, chairman of BPMigas said in a statement on Friday. 

Block operator ExxonMobil is selecting contractors to build facilities to raise production from current output of around 20,000 bpd.

Mobil Cepu Ltd, a unit of ExxonMobil operating the block, also signed a previously announced $746.3 million engineering procurement contract to a consortium of Samsung Engineering and Tripatra Engineers & Construction. 

The contract is one of five needed to build full production capacity at the block.

Slow development of Cepu, after the first breakthrough was made in the Banyu Urip field in 2001, had previously brought ExxonMobil into dispute with Indonesian authorities, which threatened to revoke its operator status. 

ExxonMobil and Pertamina inked a development deal in 2006, ending a four-year impasse as the state-owned oil firm yielded to the major's calls to be the lead operator, easing the way for the country to reverse its declining production. 

Terry McPhail, President of Mobil Cepu Ltd, told reporters that when the firm first started working on the project, it had two development plans, with an initial target for 20,000 bpd. 

"We wanted it to get on so we could get something done quickly," he said. "In the meantime, we have been working on for full field development which is the 165,000 bpd.

"That project is now at the point where the contract we sign today starts the clock and sends us heading towards the point that we can start peak production." 

He added that a challenge for the project is to limit the impact on the people and communities living in the area, in eastern central Java.

"We had to acquire many thousands of tracks of land," he said.

"That means dealing with many land owners and negotiating individual deal with each one of them. That's a significant challenge," he said adding the project has now acquired enough land to enable them to proceed with the new phase of development towards gaining full capacity.

BPMigas said ExxonMobil and partners also expected to award four other contracts before the end of this year.

In April, ExxonMobil made a second discovery at the Cepu block, Kedung Keris.

Indonesia, a former OPEC member, had been expected to produce 970,000 bpd of oil this year. But BPMigas said in May realistic oil output would only be between 933,000 and 945,000 bpd in 2011. 

Southeast Asia's largest economy reached its peak oil production in 1977 with production at 1.65 million bpd. Source: Reuters