Sat, 12 Sep 2009
From: The Jakarta Globe
By Reva Sasitiya
A senior official at the Energy Ministry said the global economic crisis and political pressure over oil companies’ costs were the reasons for the lukewarm response from investors toward exploring new oil and gas blocks.

Only five out of the 16 blocks offered by the government in December attracted successful tender offers.

Announcing the results of the tender on Friday, Evita Legowo, the director general of oil and gas at the ministry, said three international exploration companies had won the rights to explore for oil and gas in fields in Sumatra and Papua.

Canada-based Talisman Energy won the rights to develop the Andaman III field, while a joint venture between US company Black Gold Energy and Canada’s Niko Resources was granted rights to develop three fields - the Halmahera Kofiau, East Bula and West Papua IV.

Meanwhile, Petronas Carigali Overseas, a unit of Malaysia’s Petroliam Nasional, in partnership with state oil company Pertamina, has won the right to jointly explore and develop the West Glagah Kambuna block off the coast of Sumatra.

Last year, the government signed 33 development contracts covering resources such as oil, natural gas and coal-bed methane.

Explaining the low interest this year, Evita blamed the global economic crisis and the political pressure to limit cost recovery, which she said had scared off investors.

Lower energy prices coupled with tight liquidity conditions meant that companies were less inclined to explore new projects, she said.

“We also realize the changing cost-recovery scheme that is still under negotiation has frightened off the oil and gas contractors,” she added.

“We will try to find the best solution to make the situation better.”

Cost recovery is a process by which oil and gas companies can claim back expenses incurred in developing and operating assets, and is central to the government’s production-sharing contract system.

Under political pressure from lawmakers, the government is revisiting the cost-recovery scheme and is planning to issue new regulations by the end of the year to make it more difficult for companies to claim back expenses.

The draft is still being discussed at the Finance Ministry and is expected to be issued by the end of this year.

The government has also cut the budget it plans to allocate for cost recovery by $1 billion to $11 billion this year, and plans to cut another $1 billion in 2010.

Pri Agung Rakhmanto, an energy analyst at the local Reforminer Institute, rejected Evita’s reasons for the low interest in the blocks.

He said that a more rational explanation was the limited geological data that the government could provide on many of the blocks, making it more expensive for investors to explore them.



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