Development costs escalated for Indonesian projects

Indonesia’s upstream regulator BPMigas said development costs at the Cepu, Senoro, and Tangguh oil and gas projects escalated above original estimates as an indirect result of soaring oil prices in 2008.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 3 -- Indonesia’s upstream regulator BPMigas said development costs at the Cepu, Senoro, and Tangguh oil and gas projects escalated above original estimates as an indirect result of soaring oil prices in 2008.

“The sharp increase in oil prices had pushed up the prices of equipment needed for the development of the blocks,” Achmad Luthfi, BPMigas deputy chief for planning, told a recent hearing conducted by the House of Representatives Commission VII, which oversees the country’s energy and mineral resources.

According to Luthfi, development costs for the Banyu Urip oil field on Cepu block, operated by Mobil Cepu Ltd., more than tripled to $3.58 billion from $1.11 billion in the original plan.

“When the block's plan of development was approved in 2006, the oil price assumed was $35/bbl—far lower than the present $70[/bbl],” he said, adding that the rise in development costs followed a surge in drilling costs to $750 million from $273 million, and in construction costs to $2.83 billion from $838 million.

The cost to develop Senoro block in Central Sulawesi increased to $603 million from $245.5 million in the original plan approved in 2007. Luthfi said drilling costs at Senoro rose to $133 million from $8.5 million, while construction costs surged to $470 million from the initial estimate of $163 million.

According to Luthfi, the increase in the costs for the BP-led Tangguh gas field and its LNG project is still being calculated. Under the original plan of development, the project would require $7.21 billion, including $1.03 billion for drilling, $4.16 billion for facilities, and $2.03 billion for other items.

In December, Priyo Widodo, BPMigas treasury chief, said Indonesia failed to meet its oil and gas investment target in 2009 as the global economic slowdown brought down the prices of fossil energy, adding that contractors had cut spending with shrinking energy demand.

Widodo said investment in 2009 fell 10% to $10.87 billion or only 72% of the targeted $15.11 billion. At the time, Widodo said most contractors stopped drilling while they waited for the economy to recover.

Contact Eric Watkins at hippalus@yahoo.com.

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