Government offers better oil and gas contracts

Government offers better oil and gas contracts

A'an Suryana, The Jakarta Post, Jakarta

Businesspeople willing to invest in the 11 oil and gas blocks
currently being offered by the government could obtain a greater
production split of up 25 percent for oil and 40 percent for gas,
according to a government proposal released on Wednesday.

The improved contractual terms are aimed at attracting more
investment to the country's oil and gas sectors. Last year, of 14
oil and gas blocks offered by the government, only one block was
taken up by investors.

Under traditional production-sharing contracts, investors are
entitled to 15 percent of oil output and 30 percent of gas
output, with the remainder going to the government.

"The offer is being made to attract new investment to the oil
and gas sectors," said Iin Arifin Takhyan, director general for
oil and gas at the Ministry of Energy and Mineral Resources,
after a public expose for investors to explain the new
contractual terms.

According to one estimate, total investment in the 11 oil and
gas blocks could reach US$160 million in exploration activities
in the first three years, which would have a multiplier effect on
the national and regional economies.

The 11 new contract areas are located in Jambi and South
Sumatra (two contracts), off the coast of Rembang in Central Java
(one), off the coast of East Java (five), off the coast of Bali
(two) and off the coast of Tarakan island in East Kalimantan
(one).

The oil and gas sectors have been the main source of income
for the government over the past three decades.

Last year, 29 percent of the government's income came from
these sectors, with investors spending $5 billion to $6 billion
respectively on exploration and production activities, or about
40 percent of total investment in the country for the year.

Final bids for the 11 concessions should be accepted by the
government in July, with the contracts to be signed in August.

The oil and gas output investors can expect from the 11 blocks
differs, depending on geographical and geological conditions, and
the potential amount of oil and gas reserves in the respective
areas, Iin said.

"This is a precedent. In the past years, the more attractive
concessions used to be applied only for oil and gas blocks which
were hard to locate and explore, such as in the deep sea," he
said.

The only oil and gas block contract that was signed last year
was for the Muara Bakau block in the Makassar Strait.

"Security, regional autonomy and illegal levies have become a
concern for the investors, which put them on the sidelines.

"Moreover, other countries have offered better contractual
terms for investors," Iin said.

Vietnam, for example, has offered investors 65 percent of
their oil and gas output.

Iin conceded that the output portions the government was
offering were not as large as Vietnam, but Indonesia would remain
attractive because of the high rate of exploration success for
oil and gas.