BPMigas defends Cepu decision

Alfian ,  The Jakarta Post ,  Jakarta   |  Thu, 09/25/2008 12:42 PM  |  Business

Downstream oil and gas regulator BPMigas said Wednesday it had approved the construction of a floating oil storage facility for the Cepu oil and gas block, as it saw nothing wrong with the idea, which appeared to be economically feasible.

The body has been previously accused of potentially causing state losses by approving the facility, with the Cepu block operator a local subsidiary of United States energy giant ExxonMobil, having the chance to claim back related expenses later through the cost recovery scheme.

The mechanism allows oil and gas operators to reclaim expenses spent on the exploration stage, after the block begins commercially producing — an incentive to boost investment for the sector.

However, R. Priyono said Wednesday: “The study shows the floating storage facility is more feasible economically (than land storage).”

Priyono added he did not remember the exact benefit margin between floating and land storage, but he said the former would be easier because it did not require land acquisition which was sometimes costly and time-consuming.

Two weeks ago, lawmakers received reports that the project planned by ExxonMobil and PT Pertamina EP in the North Tuban Sea and designated to store oil from the Cepu block will cost the state $1.2 billion in recovery scheme payments.

The report attracted the attention of lawmakers and the media as it came from Hestu Subagyo, former director of PT Pertamina EP — Exxon’s partner in the development of the block.

Hestu said that the decision to build a floating storage facility was made by Exxon alone, without the involvement of Pertamina EP, which he claimed rejected the idea from the start.
Pertamina, Hestu added, had instead proposed renting land storage, which would be far cheaper than constructing a floating storage facility.

Priyono rejected Hestu’s testimony, pointing out that the project feasibility study was made jointly by Exxon and Pertamina.

“It’s impossible that BPMigas would approve the project without Pertamina’s participation. Hestu also signed the report.”

Still, BPMigas would welcome a re-evaluation of the project if this was requested by the government and lawmakers.

BPMigas approved Exxon’s proposal for a floating storage facility with a capacity of 2 million barrels in May 2007. A tender is currently underway for procurement of the facility.

The Cepu block is expected to start producing 20,000 barrels per day (bpd) next year. At its peak, the block could produce up to 130,000 bpd of oil, or around 15 percent of the nation’s total oil output.

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