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.