Japanese firms invest in East Java Kangean Block

Indonesia's PT Energi Mega Persada (EMP) has announced the sale of a 50% stake in trouble-ridden Kangean Block, to Japan's Mitsubishi Corp. and Japex Petroleum Explorations Co. Ltd.

Eric Watkins
Senior Correspondent

LOS ANGELES, Mar. 2 -- Indonesia's PT Energi Mega Persada (EMP) has announced the sale of a 50% stake in trouble-ridden Kangean Block, to Japan's Mitsubishi Corp. and Japex Petroleum Explorations Co. Ltd.

Each of the Japanese firms will own 25% of the oil and gas block in East Java, while EMP will hold 50%. According to EMP Vice-Pres. Herwin Hidayat, the final agreement will be signed later in March when the two firms will pay $360 million for their stake.

Herwin said EMP will use $275 million of the funds to repay a debt to Credit Suisse, while the remaining $85 million will be used as working capital. According to reports, EMP will still have outstanding debts of $120 million to Merril Lynch and $152 million to Credit Suisse.

Kangean gas is sold to two major customers in the province of East Java—petrochemical firm PT Petrokimia Gresik and electric power firm PT Perusahaan Listrik Negara.

EMP's operations on Kangean Block have been dogged with trouble over the past several months. On Jan 9, EMP said its subsidiary EMP Kangean Ltd. had resumed gas production of 64 MMcfd at its Pagerungan field operation, which had shut down Jan. 6 following a demonstration by local residents demanding a share of the company's income and more infrastructure development projects.

EMP Kangean also shut down gas production at Pagerungan field last November after an explosion along the pipeline carrying gas from the field. The explosion reportedly occurred in Porong, where land and villages were inundated by mud flows from nearby Banjar Panji 1 gas well.

The explosion was caused by mud flowing out of the ground 100 m from the pipeline since May 29 after a mishap in a nearby drilling operation run by Lapindo Brantas, an EMP oil and gas exploration unit.

Contact Eric Watkins at hippalus@yahoo.com.

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