Govt to give oil investors perks

Govt to give oil investors perks

Leony Aurora, The Jakarta Post, Jakarta

As part of its efforts to stem the steady decline in the
country's oil output, the government is preparing incentive
packages to lure investors to operate in marginal and aging oil
fields, says a top official.

One of the alternatives was to offer investment credit --
which would allow investors to obtain a higher recovery on the
investment they had made before the wells start producing -- vice
chairman of the Oil and Gas Upstream Regulatory Agency (BP Migas)
Kardaya Warnika said on Monday.

A contract between the government and oil field operators
commonly states that production sharing shall be effective only
after the initial investment made by the operator prior to oil
production has been fully covered by the output.

"For example, if the cost of investment (before the well
starts producing) is 100, the recovery will be 100 plus
something," he said on the sidelines of a seminar on oil and gas
here.

Indonesia, the biggest oil producer in Southeast Asia, is
seeing a steady decline in its oil output, plunging from 1.52
million barrels per day (bpd) in 1999 to 1.07 million bpd last
year, due to lack of new explorations and aging oil fields.

According to the Ministry of Energy and Mineral Resources, if
no effort is conducted to halt the decline, oil production will
drop by 16 percent every year.

There are 66 marginal fields -- areas with an estimated output
at between 5,000 bpd and 10,000 bpd each -- across the
archipelago as well as 21 aging fields that have not been fully
utilized.

Iin Arifin Takhyan, the ministry's director general of oil and
gas, said separately that the government might also increase the
operators' share in such fields as another incentive.

"Usually it is 85 percent (for the government) and 15 percent
(for the operator)," he said. "We may offer more," he added.

A study team, comprising representatives of the ministry as
well as BP Migas, is still discussing the details of the
incentive packages.

"Hopefully they can be concluded this year," said Iin.

The government targets to keep production at 1.125 million bpd
-- a combination of crude oil and condensate -- this year, far
less than a quota of 1.4 million bpd of crude oil set by the
Organization of Petroleum Exporting Countries (OPEC).

BP Migas chairman Rachmat Sudibjo said last week that the
country aimed to increase oil output to 1.3 million bpd by 2008.

To reach this target, the government is, among other things,
pinning its hope on the Cepu oil field in Central Java, which is
expected to produce about 180,000 bpd.

However, although ripe and ready, the area has yet to spurt
oil pending a settlement of a dispute between state oil and gas
firm Pertamina and ExxonMobil, the concession holder for the
area. Pertamina has so far refused to extend ExxonMobil's
contract, which expires in 2010, for another 20 years.

Another 150,000 bpd is expected to come from the Jeruk field
in East Java. Australia's third largest oil and gas operator
Santos Ltd. is currently investigating the actual reserves in the
area.

"We're asking them to drill another well close to the second
well," said Kardaya. "We hope production can start in 2008."