Indonesia ramps up crude drilling in Cepu block

JAKARTA, April 29 Mon Apr 29, 2013 4:16am EDT

JAKARTA, April 29 (Reuters) - Development drilling will officially kick off on Tuesday in Indonesia's Banyu Urip oilfield in the Cepu block operated by ExxonMobil, the country's oil and gas regulator said, potentially quadrupling the area's crude production by July 2014.

Amid investor concerns over regulations and legal clarity, the former OPEC member is struggling to increase oil and gas production to meet its rapidly growing energy demands, and this year hopes to reverse declining output with a focus on drilling.

Exxon has faced a host of problems developing Cepu, Indonesia's biggest oil and gas find in the last decade, culminating in the regulator's decision earlier this year to replace the company's local CEO.

The drilling programme, which includes 25 new wells, will boost output to around 110,000 barrels per day by July 2014, peaking at 165,000 bpd in October that year, Elan Biantoro, a spokesman for industry regulator SKKMigas, told Reuters by phone. That compares with between 24,000 and 26,000 bpd now.

Development drilling refers to programmes carried out in areas where reserves have been confirmed, contrasting with so-called exploratory drilling.

"We will increase production as quickly as possible, using enhanced oil recovery during primary recovery," Biantoro said, adding that water and gas from the field would be used to extract crude.

"We will store the gas above to maintain pressure. Once the oil is depleted we will extract the gas."

As well as oil wells, Exxon will build Central Processing Facilities (CPF), onshore and offshore pipelines and a floating storage and offloading facility as part of the Banyu Urip full field development.

Land acquisition problems that had caused headaches for Exxon and delays at Cepu were "no longer an issue", he said, without giving further details.

"Development of CPF and others are progressing to meet our target of full capacity production of 165,000 bpd at the end of 2014," ExxonMobil spokesman Erwin Maryoto said.

Indonesia produced around 840,000 bpd of oil in March, slightly above 830,000 bpd in January, according to the regulator.

Domestic energy self-sufficiency is a policy priority in Asia's second-biggest crude oil producer and the world's third-largest exporter of liquefied natural gas.

Resources are also a key issue in the run up to presidential elections in 2014, and a rise in resource nationalism is a growing risk for foreign operators in Indonesia.

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