Domestic and foreign oil companies operating in Indonesia may not make huge changes in their investment next year as they are hampered by government regulations, executives claim.
Oil production next year is forecast to reach 955,000 barrels per day, lower than the government’s target of 965,000 bpd in 2010.
Total investment in the oil and gas industry had been estimated to increase by 58 percent to $18.9 billion from $11.95 billion this year.
However, Chevron Pacific Indonesia president director Abdul Hamid Batubara said companies may not strengthen their upstream activities in Indonesia if the rules governing the industry remain uncertain.
“Consistency in production-sharing contact rules is needed. Otherwise, the oil and gas investment in Indonesia will not be very attractive,” he said.
Other problems he pointed to included confusion over land acquisition and environmental regulations
Abdul said drilling new wells would involve acquiring land from the local people, but “land prices are becoming more expensive from year to year.”
He said local governments must support oil companies in their attempts to acquire land.
“We have our own standard. There are no local government rules that support us,” he said.
Abdul told the Jakarta Globe in early December that oil production would remain stagnant at 380,000 bpd, or approximately 45 percent of the country’s production, as the company planned to stay focused on its current projects. A gas pipeline transferring fuel to CPI in Duri, Riau province, sprang a leak in November that led to a five-day shutdown and cost the company 500,000 barrels of oil.
Sammy Hamzah, president director of national energy company Ephindo, echoed Abdul’s concerns over regulations. He said his company was having problems securing permission from the Environment Ministry to begin new exploration.
“My company had plans to open eight new wells this year, but there are only three wells that we have opened,” he said, adding that the ministry had yet to sign off on the other five wells. “It takes a long time to get permssion, so we have pending wells to build next year.”
Pri Agung Rakhmanto, an energy analyst with the Reforminer Institute, said 2011 would not see any significant progress in oil production because the government has not made sufficient plans to open enough new oil fields.
“The investment in exploring oil and gas fields is very minimal. The other obligations that burden exploration activities such as tax and cost recovery remain unsettled,” he said.
The government has announced plans to revise some regulations. The House of Representatives (DPR) is scheduled to review the Law on Oil and Gas next year.
However, Pri said that was not enough. “It will only affect the new fields, and it will have an impact over the coming years,” he said.
The government also plans to debate a bill that is expected to resolve the outstanding issues over land acquisition. It has submitted the bill, and Coordinating Minister for the Economy Hatta Rajasa said earlier this month that he expects the House to approve it in early 2011.
Other issues on the table for the House to discuss include the principle of cabotage. The measure has been raised previously as a hinderance to the country’s economic growth as it requires all maritime vessels operating in Indonesian waters to register as Indonesian flag vessels.
It also requires oil and gas rigs to be registered in Indonesia as the law considers them to be foreign shipyards, adding regulatory burdens to operators. That has discouraged companies from deep-sea exploration for new sources of oil, Pri said.
“I hope it will be finished by 2011 so it won’t hamper offshore investment,” he said.
The Energy Ministry has said it expects the cabotage principle law to be revised in 2011.
Indonesia’s second-largest oil producer, state-owned oil and gas company Pertamina, has said it is planning to be more aggressive in its exploration as it pursues its production target of 1 million bpd by 2015.
Pertamina currently produces 192,000 bpd of crude oil. It expects to increase its output by 5.26 percent to 208,000 bpd in 2011.
The company’s expansion efforts this year included acquiring Inpex Jawa in early October, a move that also saw it secure stakes in the Offshore North West Java and Offshore South East Sumatra oil blocks.
It also plans to begin reactivating 5,244 wells in mid-January, which the company estimated would add an extra 22,888 bpd to its production.
Bowing to pressure from lawmakers, Pertamina dropped its plans to acquire a stake in Medco Energi earlier this month. However, president director Karen Agustiawan said the setback would only make it more aggressive next year.
“We will put forth more effort in 2011 as a payback for the 2010 failure,” she said at a meeting with upstream oil and gas regulator BPMigas in December.