Indonesian oil industry to face difficult times

JAKARTA (JP): Chairman and chief executive officer of Chevron Corporation Kenneth T. Derr has asked Indonesia to prepare for difficult times as a result of the steady downward trend in oil prices and increasing global competition in oil industry.

"Indonesia's greatest challenge isn't the geology underground, but the competitors around the world who are going to great lengths to attract oil company investment," he told the Indonesian Petroleum Association's 24th annual convention at the Jakarta Convention Center on Tuesday.

Derr said that Indonesia should look at the new competitors, including Russia and China.

He said that many OPEC countries previously closed to private investment, like Venezuela, Kuwait and Iran, are now open for private investment.

"Many of Indonesia's neighbors in Southeast Asia -- Papua New Guinea, Vietnam, Malaysia and Australia -- are aggressively pursuing capital and technology from private investment," added the chief of Chevron, which, together with Texaco, owns Indonesia's largest oil producer, PT Caltex Pacific Indonesia.

Derr said that the challenges for Indonesia include oil prices, which seem to be stuck in the US$16 to $18 per barrel range, and falling exploration expenditures, which have declined by almost one-half in the last ten years.

Indonesia has to face the possibility that it may become a net importer of crude oil in the next century and that its revenues from oil and gas will to decline from 24 percent to 14 percent of the total budget income.

At the same time, Derr said, relatively low oil prices have restricted investment budgets for companies like Chevron itself, which has to be selective and prioritize its investment opportunities.

He said that Indonesia should face the challenges by making changes, adaptions and adjustments to maintain its competitiveness.

Indonesia should think about the possibility of rejuvenating the industry through the creation of what Derr called a 'new production sharing contract'.

The concept would consist of tax consolidation, additional incentives for marginal field development, a mechanism for divestment and a streamlining of the government management system.

Such tax consolidation may stimulate exploration by permitting operating companies to deduct the costs of frontier exploration from taxable income generated by producing operations, he said.

"These types of changes could help Indonesia meet the challenges in the future," he said.(04)