Santos Brantas distances itself from Indonesian mudslide

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Dec. 12 -- Santos Brantas Pty. Ltd. has agreed to transfer its 18% minority interest in the Brantas production-sharing contract in Indonesia to Minarak Labuan Co. (L) Ltd. Regulatory body BPMigas has approved the transaction, Santos said.

The transfer, which includes the Banjar-Panji-1 onshore exploration well in Sidoarjo, will enable Santos to distance itself from exposure to liability claims related to a major mudflow incident which began at the site in May 2006.

Last month, Petroleum geologists, polled on the cause of the mudslides from Indonesia's Lusi volcano, said blame should go to operator and majority owner of the project, Lapindo Brantas Inc., which drilled the Banjar-Panji-1 exploration well (OGJ Online, Nov. 1, 2008).

In announcing the transfer, Santos said Indonesia has established—and is managing—a long-term mud management framework and community support program.

Since the onset of the mudslide, Santos said it has supported efforts of Lapindo and of the government in managing responses to it.

Santos Chief Executive Officer David Knox said the transfer of the interest, including a multimillion-dollar upfront payment to support the mud management efforts, is a practical and appropriate resolution to Santos Brantas' nonoperator role in the PSC.

"The Sidoarjo mudflow incident, most particularly the impact on the local community, has been of considerable concern to Santos. Throughout this time, Santos has behaved responsibly to support the relief efforts, now being coordinated by the Indonesian government," Knox said.

Transaction features
Three main elements characterize the interest transfer:

-- Santos Brantas will pay Minarak $22.5 million to support long-term mud management efforts. This amount will be covered by the existing provision for costs relating to the incident.

-- Santos Brantas and its related parties will receive a release from Minarak and from its former PSC partners—Lapindo, 50% and PT Medco E&P Brantas 32%. The release covers any claims by any of the parties, including any cash calls under the relevant operating agreement, in relation to the Brantas PSC or otherwise in connection with the mudslide damages.

-- Santos Brantas agrees not to seek to recover cash calls already paid by Santos Brantas to Lapindo towards the site management or social costs associated with the incident.

The transaction does not remove possible third party claims directly against Santos Brantas. While Santos Brantas cannot rule out possible future claims, it says it would be able to successfully defend any such claims.

The Brantas PSC participants have now agreed that consolidated control of the PSC should facilitate ongoing incident management.

Knox also said that Indonesia "will remain at the core" of Santos' Asian growth strategy."

Contact Eric Watkins at hippalus@yahoo.com.

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