Mitsubishi acquires 50% Kangean Block from Energi Mega

Japan's Mitsubishi Corp is scheduled to sign sales & purchase agreement (SPA) to acquire 50% participating interest in Kangean Block from EMP Kangean, a subsidiary of listed energy company PT Energi Mega Persada Tbk at around USD360 million Tuesday, Feb 27. EMP will use the proceeds to reduce its debts.

"The initial schedule for the signing of SPA was Monday night. But there are some issues to settle," an investment banker close to the deal said.
Few weeks ago, KUPFEC from Kuwait was predicted to win the divestment. "KUFPEC was aggresive but Mitsubishi submits better offer," he said.
Mitsubishi is one of the most aggresive energy investors in recent years. The company is also in the short list of investors to acquire 30% shares in KPC and Arutmin Indonesia, both are subsidiaries of Bakrie-controlled PT Bumi Resources Tbk.
Mitsubishi is also the largest shareholder (60%) in a mini LNG plant project in partnership with Pertamina and Medco called Senoro LNG.

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Who'll bear Lapindo's additional cost of Rp4 trillion?

The National Team set up to solve the hot mudflow disaster caused by Lapindo Brantas Inc's drilling in Banjar Panji-1 well, Sidoarjo, East Java predicted additional cost up to Rp4 trillion to rehabilitate some public infrastructures, but it's not clear yet on who will bear this cost.

Media quoted Basuki Hadimoeljo, chairman of the team, saying the additional cost is needed to finance the construction of new turnpike (Rp700 billion), general alternate roads (Rp300 billion), new railway (Rp450 billion), gas pipeline (Rp300 billion), land acquisition (Rp600 billion), and others.
The Rp4 trillion additional cost is on top of the Rp3.8 trillion compensation cost pursuant to President Decree issued last September. Lapindo has disbursed Rp1 trillion, the team claimed, and another Rp1.3 trillion should be disbursed till next month, to be followed by the remaining Rp1.5 trillion after March.
So far, the team has yet to come up with financing plan. But if government keeps its promise that Bakrie family would be responsible for all the costs, then we know what might be the next.
The family is in the process to sell significant shares in Kangean Block, one of the crown jewels of PT Energi Mega Persada. But the proceeds would not be used to finance the Lapindo disaster, I guess. The proceeds would go to creditor's coffers.

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Kangean Block, how worthy, how risky?

Bakrie acquired Kangean Block from BP Plc at only USD160 million in 2004. BP tried hard to extend the working contract for Kangean Block which matured 2010, but failed. Shortly after Bakrie acquired the block, President Susilo Bambang Yudhoyono's administration awarded 20-year extension in late 2004 when Aburizal Bakrie was still the coordinating minister for the economy. So far, no allegation of corruption, collusion, or nepotism (KKN) behind the contract extension, but we never know what will happen if Indonesia has new administration in 2009?

Last night I asked a former Caltex (Chevron) geologist on his views about stories that Marubeni and Middle East investors are competing to buy Kangean Block from Energi Mega Persada (controlled by Bakrie family).
"Once an investor asked me to review the block. The gas reserves were far below the claims. I don't know if there are new discoveries in the last two years. But without new discovery, the block's valutation is around USD400 million only," the senior geologist said.
But some say it worth USD700 million?
"Looks like USD700 million, but when you dig out the data more carefully, you'll end up with at least 40% discount," he argued.
Part of the claims is Kangean Block's reserves at 2.3 TCF of which 1.3 TCF is certified (proven). With simple math, Kangean gas worth USD2 billion minimum. So, what is the rationale behind your number (USD400 million) or other's (USD700 million)?
"Let me ask you, why BP only got USD160 million if you have USD2 billion asset?"
"Because BP failed to get the contract extension?"
"Exactly. But that's not necessarily translated to USD2 billion once you secured the contract extension. Let me ask you, how come that ConocoPhilips secured a contract to sell gas to 2.3 TCF to Perusahaan Gas Negara (PGN) in August 2004 at USD4.3 billion while similar gas amount in Kangean now only worth USD700 million the most as they said?"
"I don't know. I need to ask someone else."

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Energi resumes Kangean gas

PT Energi Mega Persada Tbk has resumed gas production and delivery from Kangean block in East Java eight days after the stoppage due to gas pipeline blast in the mudflow-covered area of Sidoarjo, East Java. Energi resumed gas delivery at minimum rate of 45 MMSCFD. Meanwhile, Santos Maleo, delivers additional 22 MMSCFD to meet the demand of PT Perusahaan Gas Negara (PGN) Tbk customers.

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Counting the losses

As thousands of displaced people (due to hot mudflow from gas field operated by Lapindo Brantas Inc) went on protest yesterday for months of gross neglience over the promised compensation and 12 people killed in a gas pipeline burst in the area covered by Lapindo mud, we're increasingly bussy in counting the losses and yet we have no idea who will pay. Why don't establish an escrow account, funded by Bakrie (if that's the commitment) with tight independent supervision to underwrite the costs?

Some was cynical when Greenomics claimed the cost incurred of hot mudflow could be billions of US dollars calling the NGO of exagerating. Government then put the estimated cost of US$150 million till March 2007. This magic number is being used by Lapindo-related parties as the total liabilities in their hands over the disaster.
But look at the claims so far. PT Jasa Marga, the state-owned turnpike operator, stated today that the cost to build a new toll road in the area would be Rp1.5 trillion and no way the company would finance that. "Lapindo should bear the cost," said Frans Sutikno, CEO of Jasa Marga.
I'm afraid the state-owned railway operator PT Kereta Api Indonesia would spend billions of rupiah to re-route the track. And the residents who lost their land claimed compensation of Rp1 million/square meter. Millions of toll road users have been suffered huge mental problems and economic losses due to the closure of the turnpike.
Millions of cubic metres of hot mud has spewed from the site, flooding over 400 hectares, swallowing eight entire villages, hectares of rice paddy fields and numerous factories in East Java, and displacing more than 10,000 people.
The gas pipeline burst is apparently the worst so far, killing 12 innocent people and injured 16 others.
As reported by Tempointeraktif.com, state-owned gas distribution company PT PGN Tbk recorded billions of rupiah of losses in the last few days. At least 244 companies, 74 hotels, and 1,090 households got no gas supply due to the explosion.
Paper manufacturer PT Kertas Leces, a state-owned company, reported Rp500 million losses in two days only. Industrial gases producer PT Samator had to stop its hydrogen, hydrogen peroxide, and carbondioxide facilities with billions of rupiah of losses. Who will pay all of these? Can we just separate the pipeline burst from the mudflow? When would all of these going to end or an endless mess? Is it possible that the worst is yet to come?
On the other end, PT Energi Mega Persada (the parent company of Lapindo Brantas Inc) filed bad and good news late last week. The first, bad one, due to the pipeline burst, Energi had shutdown gas production in Kangean Block. The second, the same day of the explosion, EMP Kangean which operates the block, had successfully started oil production in Sepanjang Islands at the volume of 9,000 barrel per day (generating cash of USD450,000/day). These evenly announcements have resulted in stable price of Energi shares at Rp500. What an odd world we livin! When many people could only count losses, small number of people still manage to calculate the benefits!

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