Wed, 04 Jun 2008
The Jakarta Post , Jakarta

Despite a trend of investment growth in the oil and gas sector helped by rising prices of the commodities, Indonesia is still in danger of a sudden capital outflow, a survey says.

According to a report released by PricewaterhouseCoopers (PwC) last week, which surveyed 89 percent of Indonesia's oil and gas producers, the vast majority of companies do not expect oil prices to come down in the next few years, while all of them agree demand for Indonesian oil and gas will not decline.

Most of the companies surveyed stated they were not considering taking their businesses out of Indonesia, although 46 percent said they were not satisfied with the return on investment here, in part due to laborious government regulations.

"This implies that if oil prices eventually do come down, there is a greater chance that firms will cease their operations and search for more profitable investment opportunities in other countries," oil and gas technical advisor from PwC Indonesia, William Deertz, said.

High commodity prices in the sector have lead to increased investments, "But the question remains: are the high oil prices sustainable?" he said.

Some 59 percent of the companies said they did not expect policy improvements would be made within the next five to ten years.

"This pessimistic view will not help to attract much-needed investment," William said.

Government officials said complicated bureaucratic problems continued to deter potential investors as current procedures often required operators to deal with several different divisions over a single issue.

"One of the biggest challenges is the lengthy bureaucracy in approving plans of development and authorizations of expenditures," director general of oil and gas at the ministry of energy and mineral resources, Luluk Sumiarso, said last week during an Indonesian Petroleum Association convention.

Investment in the oil and gas industry rose between 2000 and 2007, with total investment reaching US$10.08 billion (Rp 93.9 trillion) in 2007, up from $9.7 billion a year earlier, and from $3.93 billion in 2000.

While there is a chance companies will look elsewhere for better return on investment if prices decline, Deertz said 70 percent of the respondents expected the prices would continue to rise at least for the next five years.

The result of such rises would be increased investment, especially for acquiring reserves and increasing capital spending.

Paul Van der Aa, PwC's oil and gas technical advisor, said although capital expenditures in dollar terms may be increasing, Indonesia's relative share of the "global exploration pie" was actually on a decline.

"If the Indonesian government is committed to achieving its production target of 1.3 million barrels of oil per day in 2009, it is vital Indonesia increases exploration and general investment, not only in dollar terms, but also relative to global spending," he said.

On Friday, light sweet crude for July delivery in New York rose 73 U.S. cents to close at US$127.35 a barrel. In London, Brent North Sea crude for July delivery gained 89 U.S. cents to settle at $127.78. (anw)



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