Cablegate: East Java: Update - Mudflow Continues Unabated,

VZCZCXRO6832
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #8250/01 1820728
ZNR UUUUU ZZH
P 010728Z JUL 06
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 6603
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBY/AMEMBASSY CANBERRA 9683
RUEHWL/AMEMBASSY WELLINGTON 0927
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHGP/AMEMBASSY SINGAPORE 5368
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
ZEN/AMCONSUL SURABAYA

UNCLAS SECTION 01 OF 03 JAKARTA 008250

SIPDIS

DEPT FOR EAP/MTS AND EB/ESC/IEC
DEPT PASS OPIC, EXIM, TDA
DOE FOR CUTLER/PI-32 AND NAKANO/PI-42
COMMERCE FOR USDOC 4430

FROM AMCONSUL SURABAYA 1771

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV EPET PGOV ID
SUBJECT: East Java: Update - Mudflow Continues Unabated,
Closes Toll Road, Threatens East Java Gas/Water Supplies

REF: Jakarta 7839

1. (SBU) SUMMARY: More than a month after a gas well
ruptured just outside of Surabaya, East Java, the mudflow
continues unabated (Reftel). The good news is, the mud is
most likely not harmful in the long term (even if a bit
smelly in the short term) and that eventually, they should
be able to contain the well. The bad news is, the mudflow
has increased in volume, the response by the responsible
firms and local and national government has been
insufficient and has failed to address even the more
pressing issues (like the 3 feet of mud that have now cut
off the main north-south toll road), cost estimates to fix
the well are in the USD 100 million range, commercial and
economic losses are mounting, and the situation is now
threatening the main liquefied natural gas (LNG) line for
East Java. End Summary.

So What Actually Happened?
-------------------------

2. (SBU) As reported Reftel, PT Lapindo Brantas, was
drilling an exploratory gas well in an area 12 miles south
of Surabaya. The well fractured and has been spewing hot
mud since the end of May. PT Lapindo Brantas is owned by
the holding company of Minister of Social Welfare Aburizal
Bakrie and his brother. Lapindo Brantas, the operator of
Brantas PSC and 50 percent interest holder, is a subsidiary
of local oil firm PT Energi Mega Persada, which is
controlled by the Bakrie Group. Local oil company Medco
Energi holds a 32 percent interest in the block and
Australia's Santos Limited holds the remaining 18 percent.
PT Lapindo Brantas maintains that it followed all regulatory
procedures, standard drilling procedures and had a
government approved environmental impact permit. The firm
also tried to lay blame for the accident on the May 27
Yogyakarta earthquake. The police investigation underway
has heard expert testimony that this accident was completely
unrelated to the earthquake. According to our contacts and
preliminary reports from the police investigation, Lapindo
Brantas apparently did not conduct sufficient geological
research (there's a question whether they actually did any
geological surveys at all) and drilled on a known fault
line. They used old, worn out equipment which was unable to
withstand the stresses of drilling a high pressure well.
They did not use sufficient casings for the well
(international standards), and the drilling crew and
supervisors all had no previous experience in drilling a
high pressure well. The final nail was, once the well
fractured, the crew appeared to panic, immediately removed
the drilling equipment and broke the POB valve in the
process, eliminating the only fast way of trying to control
the well. The crew, according to police reports, then
simply left the site.

The Good News
-------------

3. There is not much good news but at least it appears the
mud is not "toxic." ConGen Surabaya Pol/Econoff spoke with
an overseas well containment expert brought in to assist.
The mud consists of dissolved young shale rock and may
contain trace amounts of heavy metals and phenols but not in
dangerous levels as has been reported in the press. Massive
amounts of salty water (millions of gallons) is shooting up
from the earth and dissolving the sedimentary rock back in
to its previous form. (Hydrogen Sulfide gas was initially
emitted from the fissure but that has apparently ceased.)
Also, the well-containment expert is confident that the well
can be contained but estimates a minimum of 4 months
unless they are lucky and the well stops on its own.

The Bad News
------------

4. The mudflow is much larger than previously reported and

JAKARTA 00008250 002 OF 003

there is as yet no strategy on how to contain it, much less
remove it. The flow has covered an area estimated
approximately the equivalent of 1600 football fields.
According to our contact, who has been out at the site for
the last few weeks, 25,000 cubic meters per day grossly
underreports the amount of mud shooting out of the fissure.
The mud has built up to a "mountain" 25 to 30 feet above
grade at the fissure point and is spreading rapidly although
at a slower rate because the area is larger. It has now
completely cut off the main north-south toll road with mud 3
feet deep, severely disrupting commerce in East Java. To
date, efforts to contain the mud have been insufficient,
consisting mainly of small dam walls which are being
ruptured on a daily basis and rebuilt with no engineering
plan or input. Outside experts have helped PT Lapindo
Brantas draft a organizational action plan to deal with the
problem but after 3 weeks, the firm has yet to fill 10
percent of the positions.

5. There may in fact be no way to contain a flow of this
size; our contacts have recommended that mud be diverted via
a channel to where it would do the least amount of damage.
One option would be to have it empty into the Porong river
where it would theoretically wash out to sea but local
officials and environmentalists are cautious about any
solution that could endanger the river or water supply for
the greater Surabaya area. So far, Lapindo Brantas has
focused most of its containment efforts on preventing the
mud from flooding two new high-end housing developments,
leaving the local village residents to fend for themselves.
That strategy may lead to an increase in the number of local
residents forced to evacuate their houses/villages. Our
contacts think the numbers could rise from the current 4,000
displaced to 10,000 in the next few weeks.

6. The well is emitting brackish, salty water at very high
temperatures to dissolve the shale into mud. This water is
breaching the local underground water table, tainting all
wells in the area (for most of the villages and residents,
well-water was the only potable water available.) This is
happening over a much larger area than the radius of the mud
flow itself.

7. Estimates of cost to fix the well keep rising and will
likely reach at least USD 100 million (far exceeding PT
Lapindo Brantas assets.) This figure does not include any
of the economic damages to local companies, residents, or
the toll road. Lapindo Brantas has been very slow in
approving necessary measures to stop the mudflow, especially
if they are costly. According to our contacts, officials
from Lapindo Brantas were unhappy when their insurance
company started discussing culpability during a recent
meeting. It appears, according to our contacts, that human
error, poor decision making and outright incompetence all
contributed to this accident. Preliminary police
investigations also cite human error and negligence. If
Lapindo Brantas insurance claim is denied due to gross
negligence and willful ignoring of standard operating
practices, they could be headed for bankruptcy and try to
stick the government with the bill.

The Very Bad News
-----------------

8. If it weren't bad enough that the well was drilled in
the middle of a heavily populated area, within 40 yards of
the main road artery for East Java, on a geologic fault,
with faulty equipment and inexperienced staff, it turns out
the main liquefied natural gas (LNG) line for East Java runs
between the fissure and the toll road. This is a large line
under 1,200 pounds of pressure that carries virtually of the
LNG in East Java which feeds all of the power generation
plants in this province. Since the "mud monster" is
essentially hot pressurized water scouring out the drilling
channel 10-30 yards away from the pipeline, according to
experts we talked to, there is a significant risk that

JAKARTA 00008250 003 OF 003

action could undermine the pipe bed. In a worst case
scenario, the weight from the earth on top and the heavy
equipment that PT Lapindo Brantas is running over the area
could cause the pipe to fracture disrupting the gas flow
throughout East Java. PT Lapindo Brantas has been
unreceptive to suggestions that they bypass that area due to
the expense involved in construction an alternate access
route.

Comment
-------

9. (SBU) So far, the police investigation has focused on
the actions of the immediate players, i.e. PT Lapindo
Brantas, and is already finding plenty to fault. It won't
get really interesting though until the police broaden their
investigation to authorities who issued the permits,
including officials in the Energy and Mineral Resources
Ministry and the Oil and Gas Regulatory Body (BP Migas), and
national or local environment ministry offices. Our local
contacts all ask the same question - how did they get
permits to drill and/or who was making sure they followed
the rules? However, few in East Java will give you odds on
that happening anytime soon. Although Minister for Social
Welfare, Aburizal Bakrie, who owns a controlling interest in
the well through the Bakrie Group, initially acknowledged
responsibility for damage claims, more recently, his
response has been "talk to my brother, it's his company."

PASCOE

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