Cepu Oil Project Faces Hurdles: BPMigas

Markus Junianto Sihaloho

Permits, social issues and a lack of skilled labor are proving major stumbling blocks in the development of East Java’s Banyu Urip oil field, upstream oil and gas regulator BPMigas said on Sunday.

The issues appear to put in doubt the ability of the $1.3 billion project, in which energy giant Exxon Mobil and state oil and gas company Pertamina each have 45 percent stakes, to meet its May 2014 deadline for development.

By that stage, the operation had intended to complete five engineering, procurement and construction (EPC) projects, in line with contracts signed with builders.

Banyu Urip forms part of the Cepu block, which Exxon is developing through two subsidiaries: Mobil Cepu and Ampolex (Cepu). Pertamina’s stake is owned by Pertamina EP Cepu.

BPMigas spokesman Gde Pradnyana said EPC V, which is in the Bojonegoro district, is being constrained because the district has yet to issue 29 necessary permits.

EPC V involves building a reservoir to support the water injection technique to lift oil and gas, as well as other production-supporting facilities.

“All parties, including the local government, should support the project,” Pradnyana said in a statement on Sunday.

BPMigas had expected Cepu block to start producing 90,000 barrels of crude oil per day (bpd) from May 2014, he said.

Other constraints, Pradnyana said, were social issues and a lack of human resources.

He did not elaborate. But in February, Tempo newspaper reported that the Bojonegoro district demanded, among other things, for Exxon to build a soccer field to replace one in the Gayam village of Ngasem that will be lost to the oil production facilities.

The local government also demanded Exxon build roads in nearby villages Templokrejo and Kaliglonggong.

BPMigas said the Banyu Urip oil field was expected to play a significant role in boosting the nation’s oil production and would go some way toward meeting the government’s goal of producing 1 million bpd of crude oil in 2014-15.

According to BPMigas’s plan, production is set to gradually increase to 150,000 bpd in August 2014 and to 185,000 bpd in November 2014.

“This project is the one that can bring crude oil production into 1 million bpd,” Pradnyana said.

BPMigas says that with its 450 million barrels of oil reserves, Banyu Urip field is the biggest reserve that Indonesia has yet to fully exploit.

“Looking at the trend in oil and gas exploration … reserves as big as Banyu Urip may not be found again in the next five years time,” BPMigas said in the statement.

The massive project involves the construction of 49 oil wells, a 95-kilometer pipe to deliver the oil to depots, a floating storage facility and an offloading facility that has capacity for 1.7 million barrels. There will also be large tanker ships to deliver oil from the floating storage.

While Exxon and Pertamina between them own 90 percent of the project, the balance is held by four local government companies under a consortium called Badan Kerja Sama Blok Cepu.

In Indonesia, which lost its status in 2008 as a member of the Organization of the Petroleum Exporting Countries, oil production has declined from 1.3 million bpd in 2001 to around 900,000 bpd now, while reserves stand at 10 billion barrels of oil-equivalent.

Efforts to bring back production to 1 million bpd is often constrained by lack of investment and complex bureaucracy.

The government has imposed limits on the hiring of foreigners, but skills among local workers are sometimes inadequate on major projects.