Sat, 02 May 2009
From: The Jakarta Globe
By Reva Sasistiya
Indonesia’s largest oil deposit, Cepu block, will continue to fall short of the government’s initial output target until August, after an initial delay until June, as difficulties acquiring land continue to freeze the construction of key infrastructure, the Energy Ministry said on Friday.

Savvy speculators have snapped up property near the Cepu block, driving up land prices, halting production and blowing up the initial budget of $2.6 billion to develop the onshore deposit. The Cepu block was expected to meet a target of 20,000 barrels per day (bpd), but is currently only producing about 2,000 bpd.

Evita Legowo, the Energy Ministry’s director general, said the agency requested the Bojonegoro district government two weeks ago to facilitate between the block’s operators and local property owners on the issue of land acquisition.

Land acquisition needs to happen as soon as possible’

Evita Legowo, director general,Energy Ministry

“Land acquisition needs to happen as soon as possible, especially in the area for a pipeline that will be built by Pertamina from the field to Tuban,” Evita said, speaking of the district in East Java where about half of the oil is refined in facilities jointly owned by state oil and gas company Pertamina and PetroChina.

Energy Minister Purnomo Yusgiantoro said the ministry would push local governments to address the issue, given the project’s potentially significant contribution to national output. Crude production dropped to 832,200 bpd in March,

“Failing to acquire land will halt the oil output, if [local land owners the Cepu operators] can’t reach an agreement,” he said.

The cost of developing the Cepu block - located between Central Java and East Java - is also likely to rise because of higher drilling costs. Mobil Cepu is currently using temporary equipment until June to increase oil production to 5,000 barrels bpd from the current 2,000 bpd.

Mobil Cepu, a subsidiary of ExxonMobil, and Pertamina, through its unit, Pertamina EP Cepu, each hold 45 percent of the block. Ten percent of the site is held by local government-owned companies.

Sarana Patra Hulu Cepu, owned by the Central Java government, has a 1.1 percent share, while Blora Patragas Hulu, owned by the Blora district government, and Petrogas Jatim Utama Cendana, owned by the East Java provincial government, hold 2.2 percent each.

Hong Kong-based China Sonangol International Holding has provided financing worth $200 million to help fund the development of the block.



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