Gas Plant Occupied in Indonesia Protest By Villagers Forces Energi Mega to Slash Production BUSINESS ASIA By Bloomberg

By Leony Aurora

Energi Mega Persada, the second-largest publicly traded Indonesian oil company, almost halved its natural gas production Monday after villagers occupied a processing plant on an island off East Java, shutting its largest gas field.

Residents on Kangean Island occupied the plant two days ago, demanding that Energi Mega pay 2 billion rupiah, or $221,000, a year to the local community from its revenue and that it build a port and roads, Amir Hamzah, a spokesman at the Indonesian oil and gas regulator BPMigas, said by telephone Monday. The action has stopped 40 million cubic feet a day of production.

The protest follows a blow out last year at a gas well controlled by Energi Mega that started a mud flow which has displaced more than 12,000 villagers. Increased opposition to drilling may hamper a drive to stem falling oil and gas production in Indonesia. The development of the largest untapped Indonesian oil field in Cepu, Java, may be delayed because of concerns among local residents, BPMigas said last month.

The regulator is cooperating with the local government to persuade the protesters to leave the Kangean facility, Hamzah said. The plant separates natural gas, water, and light oil before transporting the gas through a pipeline that feeds factories in East Java.

Santos of Australia has more than doubled output from its Maleo field to 80 million cubic feet, or 2 million cubic meters, a day to replace the lost output from Kangean, Hamzah said. Energi Mega and Santos sell gas to Perusahaan Gas Negara, which owns the pipeline and resells the fuel to its industrial customers in East Java.

Santos, the third-biggest Australian oil and gas producer, can continue producing at the higher rate at Maleo for as long as necessary, said Kathryn Mitchell, a spokeswoman for the company. How long it will continue at 80 million cubic feet a day “will be determined by what happens at the Kangean plant,” she said in an interview.

Energi Mega cannot comment on the shutdown, Herwin Hidayat, head of investor relations at the company, said by telephone. He did not confirm the amount of gas production lost.

Energi Mega’s unit Lapindo Brantas operates the Brantas area, where the mud flow started on May 29, and has a 50 percent share in the area. Medco Energi Internasional holds 32 percent while Santos has 18 percent.

Lapindo must pay 3.8 trillion rupiah to cover repairs and compensation caused by the mud flow, President Susilo Bambang Yudhoyono of Indonesia said Dec. 28. He did not say whether Santos and Medco Energi would have to share the burden.

Santos is still seeking clarification from Lapindo on the compensation and damage costs, said Christian Bennett, a Santos spokesman dealing with the mud flow disaster.

The disputed Kangean field can pump as much as 70 million cubic feet a day and was developed to supply a power station and fertilizer plant in East Java.

Output was cut after a pipeline owned by Pertamina, which had carried gas from Kangean, exploded on Nov. 22. The pipeline burst because of pressure from a dam built over it to contain the mud from the Lapindo blowout.

Energi Mega resumed gas production at 45 million cubic feet a day on Dec. 1 and diverted the gas to the Gas Negara pipeline, the only other one available, Thomas Soulsby, a director of the company, said Dec. 5.

Aside from Kangean, Energi Mega produces 44 million cubic feet a day of gas from the Brantas and Gebang areas, Hidayat said. Indonesian oil production fell to an average 1.01 million barrels a day in 2006 from 1.05 million barrels the year before, BPMigas said Dec. 15.

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