Sept. 15 (Bloomberg) -- Santos Ltd., Australia's third- biggest oil and gas producer, said it believes a provision made for a mud-flow disaster in Indonesia is appropriate and rejected a suggestion it understated the incident's severity.
Santos will continue to review the adequacy of the provision, the Adelaide-based company said today in a statement to the Australian stock exchange. The situation ``remains dynamic, complex and uncertain,'' it said.
Santos dropped as much as 6.6 percent to A$18.09 in Sydney trading, the largest decline since Sept. 3 and the worst- performance of the 46 stocks in the MSCI AC Asia Pacific Energy Index.
The Australian company owns 18 percent of the Banjar Panji gas exploration in East Java, where mud started flowing after a blowout in May 2006, inundating homes, rice fields, factories and roads. In February, Santos increased its provision for the incident by $7 million to $79 million.
Santos faces a blow-out in the clean-up bill for the incident, which has affected 75,000 people, the Australian Financial Review reported today.
Santos's share of the mitigation cost could be as high A$830 million ($681 million), nearly 10 times more than the company has disclosed to the market, the newspaper reported.
A study by the United Nations Environment Program and AusAid that is yet to be made public found the only solution is to transport the mud 14 kilometers (9 miles) to the ocean, the newspaper reported.
The UN report estimates that the total economic loss from the mudflow, which began after a drilling incident involving PT Lapindo Brantas, has risen to A$3.4 billion. Santos owns an 18 percent stake in that company.
Santos ``continues to believe that a resolution may ultimately be reached between all relevant parties,'' it said in the statement.