Pertamina and Exxon Mobil Friday signed a preliminary agreement to co-develop the offshore East Natuna Block, paving the way to extract natural gas from the massive block located in the South China Sea.

Projects like Natuna and Chevron’s deep-water Gendalo-Gehem gas development are helping to restore Indonesia’s status as a major oil and gas producer, after the country suspended its membership in the Organization of Petroleum Exporting Countries as output fell in recent years.

Pertamina Chief Executive Officer Karen Agustiawan told reporters that Pertamina is still in talks with other potential partners to develop the block, formerly called Natuna D-Alpha.

Agustiawan didn’t name the potential partners, but an official familiar with the matter told Dow Jones Newswires earlier this week that the state-owned oil and gas company was talking with Petroliam Nasional Bhd., or Petronas, of Malaysia, and France’s Total.

The latest deal comes after Chevron said Thursday that it has awarded engineering contracts for Gendalo-Gehem, which will be its biggest single investment in Indonesia.

The International Energy Agency predicted in its World Energy Outlook 2010 published last month that Indonesia’s natural gas output will reach 91 billion cubic meters in 2020.

Oil and gas projects in Indonesia have often suffered delays, due to regulatory issues and tax changes that have affected the ability of investors in the projects to recover their costs.

The Indonesian government in 2008 unilaterally handed over the rights to develop Natuna to Pertamina from Exxon Mobil after the government and Exxon Mobil failed to reach an agreement on a new revenue-sharing deal.

Pertamina was seeking several partners to help it develop the block, which has 46 trillion cubic feet of natural gas, making it the biggest gas reserve in Asia. The gas, however, has high carbon dioxide content, which requires a big investment and highly sophisticated technology.

A government official said Friday that East Natuna is expected to start production in as few as seven years.