[Kabar-indonesia] 'Knives Are Out' as Santos, Java Partners Fear Angry Mudflow Backlash

[JoyoNews at aol.com]

The Australian
Saturday, July 1, 2006

Well of discontent for Santos as mud sticks

Santos and its Indonesian partners fear 
an angry backlash, says Nigel Wilson

SURABAYA is Indonesia's second-largest city with 3 million people supporting 
a hive of commercial activity.

It is also the capital of East Java and the focus of exploration because its 
gas distribution system provides a ready market for discoveries. 

In the past month, that exploration activity has attracted intense criticism 
in Indonesia because of an incident involving the Banjar Pangi-1 well in which 
Santos has an 18 per cent interest. 

The well is being drilled 38km southwest of Surabaya in what is known as the 
Brantas Production Sharing Contract. 

Sulphurous mud and water have been rising to the surface from cracks in the 
ground near the well, burying surrounding paddy fields as well as three 
villages, Siring, Renokenongo and Jatirejo, and the Surabaya-Malang toll road. 
Communities have been forced to move. The incident was so dramatic that it was 
bought to the personal attention of Indonesian President Susilo Bambang 
Yudhoyono. 

Residents told reporters they were shocked to find the entrances and ground 
near their houses covered by what looked like a smooth, gray paste of 
concrete. 

A number of businesses, including the ubiquitous rattan furniture factories, 
have closed and as far away as Jakarta there are allegations of impropriety 
involving Santos's Indonesian partners. 

The knives are out, particularly after the operator offered the equivalent of 
$22 
in compensation to help cover the costs of displaced families. What happened? 

At this stage no one really knows. 

An international group of experts is investigating the cause of the venting 
and expects to report to the joint venture in the next week. 

What is known is that at 5.54am on Saturday, May 27, a major earthquake 
rocked Central Java. Subsequently, on May 28, rig operators at the Banjar 
Panji-1 well noticed a kick in the rig string and moved to shut the well 
down. 

It may be they weren't fast enough in pouring in cement to case the well. 

But whether the well, and the way it was handled, was the cause of the gas 
and mud venting to the surface on the following day, has not been 
established. 

The Indonesian media has alleged negligence on the part of the operator, 
Lapindo Brantas. 

Australian companies have been active in the Surabaya area for more than 
a decade. In 2002, Novus Petroleum announced it had made a gas discovery 
in the Brantas PSC with its 50-50 joint venture partner, Lapindo Brantas, a 
unit of Indonesian publicly listed oil and gas company Energi Mega Persada. 

Lapindo Brantas has a 50 per cent stake in the Banjar Panji-1 well, with 
32 per cent owned by Indonesia's biggest listed E&P group, Medco Energi, 
and the remainder by Santos. 

The interest for Australia is that the Brantas PSC was the focus of 
Australian company Novus Petroleum, which in 2004 was taken over by Medco Energi 
after a long-running battle. 

At one stage, Santos joined with Novus's management in an unsuccessful 
attempt to head off the takeover. 

Santos has been in Indonesia since 1993 and has had success in finding 
gas for use in Surabaya. 

As part of the Novus washup, Santos secured 36 per cent of Novus's 
Indonesian interests, including those in the Brantas PSC. 

Santos reported to the stock exchange this week it had been told by 
Lapindo Brantas that "a well control incident" occurred on May 29 at 
Banjar Panji-1. 

Santos said a flow of mud and water had affected a number of nearby 
villages, businesses and roadways near Surabaya, but that it was insured. 

The Indonesia media has reported Medco Energi as accusing Lapindo 
Brantas of being "grossly negligent" in failing to implement prudent 
operating measures. 

"Based on our technical review with respect to the current Banjar Panji-1 
drilling incident, we consider Lapindo as the operator of PSC Brantas Block 
has committed a gross negligence," Medco was reported to have said in a 
letter to Lapindo. 

While Santos is not involved in operating the well, the company is clearly 
concerned at the level of adverse comment in Indonesia and - with the benefit 
of experience from its own incident at the Moomba Gas plant on New Year's 
Day 2004 - it is keen to get to the bottom of the Banjar Panji-1 problem 
quickly.

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Joyo Indonesia News Service
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