BP Migas works towards higher oil and gas production

Rikza Abdullah, Contributor, Jakarta

Indonesia is ready to gear up for its oil and gas industry under a new law that has demanded the government restructure the industry's management system.

The Implementing Body, known as Badan Pelakasana Migas (BP Migas) was established in July under Law No. 22/2001 on oil and gas as part of the restructuring plan.

The agency has taken over the authority to manage and supervise the upstream oil and gas industry from state oil company Pertamina. The government is also preparing for the establishment of a similar regulatory body to manage the oil downstream industry such as fuel refinery and retail sales.

"We will take proportional measures to optimize the country's output of oil and natural gas, while keeping down production costs, so that the government can earn maximum revenue from this industrial sector," says BP Migas' chief Rachmat Soedibyo.

Rachmat, who was installed as the body's first chief in August, said the measures would include the acceleration of processes for the approval of oil and gas production-sharing, contractors' proposals on working plans and their budgeting.

In Indonesia, there are currently about 130 production-sharing contractors, of which 40 have produced oil or natural gas, while the others are still at the exploration stage. Each of the contractors is required every year to submit proposals on its annual plans in exploration and/or production activities and on its spending for them.

"We will expedite the approval processes to help increase the government's revenue from the oil and gas sector," Rachmat said in a recent interview with Suara Pembaruan daily.

The government, under a budget plan approved by the House of Representatives last month, expects to earn Rp 70.97 trillion (about US$7.88 billion) in revenue from the oil and gas sector in 2003. The figure is based on assumptions that the country will produce 1.27 million barrels of oil per day, that crude oil prices will average $22 a barrel and that the rupiah's value will average Rp 9,000 per U.S. dollar.

"We expect the country will be able to produce at least 1.27 million barrels per day (bpd) in 2003," Rachmat said.

According to a statistical report from the Ministry of Energy and Mineral Resources, Indonesia's production of oil (comprising crude oil and condensate) steadily declined from 1.6 million bpd in 1995 to 1.41 million bpd in 2000. It declined further to 1.34 million bpd (consisting of 1.21 million bpd of crude oil and 131,869 bpd of condensate) in 2001. Of the 2001 oil output, 90.3 percent (1.21 million bpd) was produced by production-sharing contractors and the other 9.7 percent (130,471 bpd) by Pertamina.

The report also shows that the country's natural gas production decreased from almost 3 trillion standard cubic feet (scf) in 1995 to 2.9 trillion scf in 2000 and to 2.8 trillion scf in 2001.

Rachmat said BP Migas would also formulate key performance indicators, based on which it would introduce a benchmark cost for the production of each barrel of crude oil and a benchmark cost for the drilling of each meter of an oil well.

"The introduction of such benchmark costs will make it easy for production-sharing contractors to formulate budgets for their work plans, and for the Implementing Body in expediting the processes of approval on the work plans," he said.

He acknowledged earlier this month that total spending of oil and gas companies (including production-sharing contractors and Pertamina) for exploration and production activities slightly increased, from $3.93 billion in 2000 to $3.94 billion in 2001. But the spending was expected to decline to $3.71 billion this year. During the first nine months of this year alone, their spending reached only $3.41 billion.

In line with the slight increase in the companies' spending in 2001, the number of exploration wells drilled that year, according to the ministry's report, increased by 29 percent to 106, from 82 in 2000, while the number of development wells drilled slightly decreased to 915, from 931 respectively.

"The companies' total spending was likely to increase by 15 percent in 2003," Rachmat told reporters after a meeting with executives of production-sharing contractors in Jakarta on Dec. 2.

He said his institution was now also looking for the best structure of its organization to make its working mechanisms efficient.

In accordance with Government Regulation No. 42/2002, which was issued to complement Law No. 22/2001, the institution's chief is assisted by a vice chairman and five deputy chairmen. And because it takes over Pertamina's authority in the management of upstream oil ad gas industry, all 600 employees of Pertamina's directorate of production sharing management are transferred to it.

"We will likely increase the number of our employees by 8 percent because we lack staff members related to approval on exploration and production activities," Rachmat said.

Spokesman for the Implementing Body Siddik Nitikusuma commented that Indonesia's oil and gas industry was expected to be more attractive to foreign investors after the revamping of its management.

The number of production-sharing contracts awarded by the government (represented by Pertamina) to foreign companies decreased from 29 in 1997 to 22 in 1998 and to four in 1999 before increasing to seven in 2000 and nine in 2001.

Rachmat said that after the transfer of the upstream oil and gas industry's management from Pertamina to the Implementing Body, the state-owned company purely operated as a business- oriented entity, just like other oil and gas enterprise. The body, therefore, would not give privileges to Pertamina when it tendered production-sharing contracts.

However, the body might make an offer to Pertamina to operate an oil or gas field before tendering it openly to all potential companies. "But as soon as Pertamina accepts the offer, it should provide the money to finance its operation," he said.

In a related development, Pertamina's president director, Baihaki Hakim, told reporters earlier this month that the company, which was vying to become a world-class oil firm, might not be able to finance all its investment needs due to its limited annual incomes.

The company, in its efforts to cope with competition in a market where it was gradually losing its exclusive rights, needed to invest $1.34 billion for its upstream and downstream projects in 2003, $2.08 billion in 2004, $1.51 billion in 2005, $1.25 billion in 2006 and $1.1 billion in 2007, he said.

"But we might be able to provide only about 10 percent to 15 percent of our investment needs," he was quoted by Kompas as saying. "Therefore, we will have to look for funds from external sources or invite foreign partners for cooperation in carrying out our projects."