Floating Indonesian storage project to incur losses

The Indonesian parliament has been told that a floating offshore storage project jointly planned by ExxonMobil Corp. and state-owned PT Pertamina EP may incur up to $1.2 billion in state losses.

Sep 12th, 2008

Eric Watkins
Oil Diplomacy Editor

LOS ANGELES, Sept. 12 -- The Indonesian parliament has been told that a floating offshore storage project jointly planned by ExxonMobil Corp. and state-owned PT Pertamina EP may incur up to $1.2 billion in state losses.

The House of Representatives' inquiry committee on oil and gas management has received reports that the project—planned for the North Tuban Sea and designed to store oil from the Cepu block on the border of Central and East Java—will cost the state in recovery scheme payments.

Under the payment recovery scheme, oil and gas producers can charge the government for costs related to exploration, a form of incentive originally designed to boost investment in the country's oil and gas sector.

Recently, however, criticism has arisen of the scheme, with claims that international oil companies are improperly using it. That theme was taken up in this week's parliamentary meetings.

"A floating storage facility costs $1.2 billion more than land storage, meaning it could cost the state $1.2 billion in revenue to pay the recovery costs," said Zulkifli Hasan, head of the inquiry committee.

Hasan's remarks were based on testimony from Hestu Bagiyo, an advisor to Pertamina, who said the decision to build a floating storage facility was made solely by ExxonMobil without the involvement of Pertamina, which had rejected the idea from the start.
"We proposed renting land storage for oil from Cepu," Hester said, adding that, "This would be far cheaper than floating storage." He also said that Pertamina had recently built a 100,000-bbl land storage facility.

Hester suggested that ExxonMobil rejected the idea of using the Pertamina facility due to the opportunity to write off the expense of the floating offshore storage project under the government's cost recovery program.

ExxonMobil denied the claim. The firm carried out "a proper and comprehensive study before proposing to use the floating storage," according to company spokesperson Deva Rahman, who added that, "On all aspects, floating storage is more feasible."

The parliamentary inquiry team next week plans to invite ExxonMobil to obtain a more comprehensive account, Hasan said.

In May 2007, Indonesia's upstream oil and gas regulator BPMigas approved ExxonMobil's proposal for a floating storage facility with a capacity of 2 million bbl, and a tender is currently underway for its procurement.

Contact Eric Watkins at hippalus@yahoo.com.

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