Santos Denies Playing Down Indonesia Mud Volcano Disaster

SYDNEY (AFP) — Australian oil and gas giant Santos on Monday denied downplaying the seriousness of the disaster caused by the world’s largest “mud volcano” in Indonesia.

The company was responding to a report that said it faced a ten-fold blowout of the clean-up bill from the unstoppable mudflow that was caused by a gas drilling incident in East Java in 2006.

“Santos rejects any suggestion that it has understated the severity of that incident,” the company said in a statement.

The company’s shares fell 3.6 percent following news of the clean-up cost of the area near Java’s second-largest city of Surabaya.

Fairfax newspapers quoted a leaked report by the UN Environment Program (UNEP) and Australia’s government aid body AusAid as saying the disaster has so far caused economic damage of 3.4 billion dollars and could be contained.

The study reportedly said the only way to mitigate the disaster would be to transport the mud 14 kilometers (8.75 miles) to the ocean to create a wetland, which would send the cost skyrocketing to 4.6 billion dollars.

The mudflow could cost Santos 830 million dollars (681,762 US), the report said, while the firm has declared provisions of just 88.5 million dollars to the Australian Stock Exchange to cover the clean-up cost.

The company, which has an 18 percent stake in a gas operation at the site, refused to comment on the UNEP report but said it believed that its declared provisions would be adequate.

“Given the conditions at site and current activities being conducted, Santos believes that the provision remains an appropriate estimate of its potential liability associated with the incident.

“As Santos has indicated previously, the situation remains dynamic, complex and uncertain. Santos will continue to review the adequacy of the provision in light of developments and available information,” the company added.

Santos has not admitted any liability for the disaster.

Santos shares were off 0.71 dollars, or 3.6 percent, in late trade at 18.66 dollars following the report.

A study by foreign scientists in Indonesia has found the mud volcano was caused by drilling by oil and gas firm Lapindo Brantas, which holds a 50 percent stake in the scheme.