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.