Fri, 26 Nov 2010

Jakarta (ANTARA News) - Indonesia`s oil production will drop by up to 270,000 barrels per day , if the cabotage principle is applied to foreign contractors in 2011, the country`s oil and gas industry`s regulator said.

"Oil contractors have said they will pull out at the end of December 2010 if there is no clarity about the cabotage regulation," R Priyono, head of the Oil and Gas Upstream Regulatory Agency (BP-Migas), said in a hearing with the House of Representatives (DPR)`s Commission VII here Thursday.

Should the contractors` pullout happen, he added, the country`s oil production target for 2011 set at 970,000 barrels per day in the state budget would not be achieved. The same thing would happen to national gas production, he said.

As instructed by Coordinating Minister for the Economy, BP Migas had notified oil contractors that the government wanted them to continue with their production activities. However, they had asked for a written guarantee that their present operations would not be deemed a violation of the cabotage regulation.

There are currently 54 off-shore drilling ships flying foreign flags operating in Indonesian waters that will be banned from operating in accordance with the cabotage principle, Priyono said.

The 54 drilling ships are part of a total of 600 ships and vessels operated by oil contractors in Indonesia.

Indonesia is scheduled to start implementing the cabotage principle on January 1,2011 when only ships flying the Indonesian flag are permitted to operate in the country.

Priyono said the regulation would be hard to apply to drilling ships due to their short-term contracts and the scarcity of global oil production. The regulation requires oil and gas companies to use only domestically owned vessels.

After January 1,2011, foreign vessels which still operate in Indonesia could face both administrative and criminal sanctions. Article 284 of the Maritime Law No. 17 of 2008, stipulates that breaches of the cabotage principle may cause the violators to incur a maximum fine of 600 million rupiahs and a maximum jail sentence of of five years.