BP Migas works towards higher oil and gas production

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."