Government moves to help oil firms

Government moves to help oil firms

Fitri Wulandari, The Jakarta Post, Jakarta

The government is considering offering investors the
opportunity to conduct joint studies before they submit proposals
for oil and gas concessions as part of the country's latest bid
to boost investment in the sector.

Iin Arifin Takhyan, the director general of oil and gas at the
Ministry of Energy and Mineral Resources, said investors would be
allowed to conduct studies jointly with the ministry to assess
hydrocarbon reserves in the blocks they were interested in.

"When, based on the studies, they are sure about the block's
prospects, they can submit proposals to us to obtain the
concession. First come, first served," Iin told reporters over
the weekend.

After the company submitted its proposal, the government would
place a notice in the media inviting bids from other interested
parties in order to ensure transparency.

If another firm was to offer a better price and terms to the
government, the latter would give an opportunity to the firm that
had conducted the study to improve its offer for the block.

"This will widen the opportunities (to acquire oil and gas
concessions). The company that carries out the study will have
the right to preempt (other bids)," he said.

The government and investor would jointly finance the cost of
the study.

Currently, investors bid for oil and gas blocks after studying
the geological data provided by the government, which frequently
lacks detail and is sometimes inaccurate. They are not allowed to
conduct field studies before submitting their bids.

The new policy, if adopted, would represent another move by
the government to revive plummeting investment in the oil and gas
industry.

Such falling investment is worrisome, particularly given the
natural decline in the country's oil reserves. Indonesia
currently produces around one billion barrels per day (bpd),
below its quota of 1.27 billion bpd set by the Organization of
Petroleum Exporting Countries (OPEC).

The country's proven and possible oil reserves stand at around
10 billion barrels, which is enough to last around 20 years. To
prolong the life of its oil reserves, Indonesia will need new oil
discoveries.

Prior to the crisis, the government awarded 28 oil and gas
contracts in 1997. But since then the number has been declining,
with only one contract signed in 2002.

The sector started to pick up last year with the government
awarding a total of 15 contracts. The better-than-expected
results were attributed to the government's moves to revamp the
procedures for obtaining oil and gas concessions.

For instance, the government has offered a higher production
share to investors, particularly those willing to prospect for
oil and gas in remote and deepwater areas.

The government has also simplified the procedures for
obtaining acreages. Investors can now directly propose the
acreages they are interested in instead of having to wait for
tender announcements.

Energy expert Kurtubi said the policy of allowing investors to
conduct joint studies with the government to measure hydrocarbon
reserves was a good way of attracting investors.

"The investors will gain accurate data on hydrocarbon reserves
before confirming its wish to invest in the bloc," Kurtubi told
The Jakarta Post over the weekend.

However, Kurtubi said the proposed new arrangements could
encourage practices detrimental to healthy competition.

"They could keep the information for themselves and not share
it with others. This would inflict losses on the others," he
said.

The proposed arrangements also had the potential to result in
privileged treatment for certain investors.

"The government should maintain its neutrality by affording
other companies the same opportunities to conduct studies and bid
for blocks," he said.

Kurtubi emphasized that it was more important for the
government to address the current lack of legal certainty
plaguing the sector, which was due to the absence of government
regulations on the upstream and downstream sectors as required by
the Oil and Gas Law (Law No. 22/2001).

"Investors need legal certainty more than anything else," he
stressed.