Govt offers 20% more cost recovery
Leony Aurora, The Jakarta Post,Jakarta
The government will offer higher cost recovery for operators willing to work on small oil fields, in the hope that such an incentive will boost the country's oil production by 50,000 barrels per day (bpd) and stem the steady decline in output.
Eight oil companies had already submitted applications and had been granted the incentive to work on 30 marginal fields located within their operational areas, the Ministry of Energy and Mineral Resources' director general of oil and gas Iin Arifin Takhyan said on Tuesday.
The companies would be able to claim 20 percent more of incurred costs, said Iin at a meeting held to announce the incentive package.
"Other incentives that have been granted to the companies in the past will remain applicable," he added.
Companies that will operate the marginal fields are Pertamina's Joint Operation Body (BOB), namely Bumi Siak Pusako, Kondur, Medco, the China National Offshore Oil Company (CNOOC), Energi Mega Persada, Premier, BP Plc and Caltex Pacific Indonesia.
A marginal field is an oil field located within a producing block that -- under the current production sharing contract (PSC) terms and conditions -- is not economically viable to be developed, with a rate of return (ROR) lower than 15 percent.
Iin said the government would evaluate the companies' cumulative ROR annually. "If it (cumulative ROR) is higher than 30 percent, we will retract the incentive," he added. "We will give it back (to the companies) when the ROR falls to under 15 percent."
To get the incentive, the government requires that all exploration costs for the field have been fully recovered. The 20 percent operating cost recovery up-lift is valid for current year's non-capital costs and depreciation.
Iin said the marginal oil fields were expected to produce 50,000 barrels of oil per day within one year to add to the country's dwindling output.
Speaking in the same event, chairman of the Oil and Gas Upstream Regulatory Agency (BP Migas) Kardaya Warnika said that the government would open registration for companies interested in getting the incentive for one year.
"The contractor is obliged to start implementing the POD (plan of development) within one year after the marginal field incentive is granted," he said.
Indonesia, the biggest oil producer in Southeast Asia, is struggling to maintain its oil output, which plunged from 1.52 million barrel per day (bpd) in 1999 to 1.07 million bpd last year, due to lack of exploration and aging oil fields.
According to the energy ministry, if no effort is conducted to halt the decline, oil production will drop by 16 percent every year.
The country's largest untapped oil deposit is Cepu field, Central Java, which is estimated to be able to produce 180,000 bpd. A dispute between current operator ExxonMobil Oil Indonesia and state oil and gas firm Pertamina continues to stall development of this field.
Another hope is from the Jeruk field, in East Java, which is operated by Santos Ltd. and is expected to produce 150,000 bpd.