Indonesia sweetens oil terms to lure investors

Indonesia sweetens oil terms to lure investors

VIENNA (Reuters): Indonesia hopes to lure fresh interest from foreign investors to its mature upstream oil and gas sector by sweetening exploration terms, Energy and Mines Minister Purnomo Yusgiantoro said on Sunday.

OPEC's only Asian producer plans to offer 28 exploration blocks out for bidding early in 2001 and will work on a case-by- case basis to improve fiscal and production-sharing terms to attract investors, Yusgiantoro said.

Some of the new blocks will include uncharted territory in deepsea and onshore areas. There will also be a technical assistance contract with state company Pertamina for an existing field.

"The bottom line is, we want to get investors to come and explore for oil and gas in Indonesia. We will closely watch this bidding round, it will be an important indicator of how attractive Indonesia is to investors," the minister told Reuters in an interview.

"If we don't get much interest, it will be a signal that we need to make terms even more attractive," he said.

Indonesia has seen crude output drop this year because of technical problems and labor disruptions. It is struggling to meet an OPEC quota target of 1.385 million barrels per day (bpd).

Industry sources pegged Indonesian output at about 1.26 million bpd in October. The gas-rich nation also produces about 200,000 bpd of condensate.

Yusgiantoro said the country had potential spare capacity of between 60,000 and 75,000 bpd in the short-term, but would need time to bring onstream those flows. He declined to give any timeframe.

In the medium term, Indonesia hoped to be able to add 100,000 to 150,000 bpd, he said.

He said that apart from new developments such as the 100,000 bpd West Seno project, extra crude would also come from rehabilitation of existing fields.

"Most of our fields were discovered a long time ago but there is still a lot of potential in these existing oilfields and this type of work is attractive to oil companies," he said.

He said that as well as attracting investment into the oil sector, Indonesia was keen to develop gas reserves.

"Oil is giving us foreign exchange and meeting some domestic demand, but we are very gas rich and we also see good potential to substitute oil consumption with natural gas," he said.

The Indonesian Gas Association expects domestic gas consumption to rise 9 percent a year over the next five years to 3.6 billion cubic feet per day in 2005.

Yusgiantoro said that a shift in oil production sharing ratios would be one incentive to entice foreign oil firms.

Current standard contracts give a 85:15 spilt to the government, but deepwater areas might be raised to 80:20, he said.

Changes to fiscal terms may also include depreciation schedules, tax breaks, investment credit and domestic market obligations.

The government is also considering an easing of import procedures to make it easier and quicker for contractors to bring equipment and materials into the country.

"We want to make it simple, but this has to be on a case-by- case basis to reflect the degree of difficulty of the project. Deepsea areas will need bigger enticements than onshore," Yusgiantoro said.