Oil contractors budget $4.8b for exploration and production

JAKARTA (JP): Foreign oil and gas contractors will spend up to US$4.8 billion next year in exploration and production, a $500 million increase over the current year.

Pertamina head of foreign contractor supervision Gatot K. Wiroyudo said on Tuesday the annual budget would include spending on 76,000 kilometers of seismic activity and the drilling of 137 exploration wells and 1,255 development wells.

He added that the $4.3 billion spent this year was some $1 billion less than contractors had budgeted.

He said spending declined due to a drop in exploration activity, which was initially budgeted at $950 million but eventually only reached $586 billion.

"The drop was caused by low oil prices at the beginning of 1999," Gatot said during a breaking of the fast meal at Dharmawangsa Hotel.

During the drafting of the 1999 budget, contractors estimated oil prices would recover during the second quarter of the year, but prices remained low until after April when they soared to an average of $19 per barrel.

"The government's decision to abolish tax holidays also contributed to the decline," Gatot said.

He said that before 1999 exploration was exempt from value added taxes until production, meaning the abolishment of tax holidays was seen as a disincentive by investors.

He said Pertamina's Foreign Contractor Coordinating Agency would appeal to the Ministry of Finance to reintroduce the tax facility to encourage oil and gas exploration in the country.

Gatot said the level of activity of oil and gas contractors in 2000 would remain relatively stable in 1999.

For 2000, investment for exploration was budgeted higher than in 1999 at $743 million, with development costs reaching $867 million and production costs increasing by $344 million to $2.755 billion.

Under a production sharing scheme, contractors estimate gross revenue for 2000 will reach $11.53 billion, of which Indonesia's share is expected to drop to $6.46 billion from $7.59 billion in 1999.

The contractors' share is also expected to drop to $1.41 billion from $1.67 billion in 1999.

The estimates are based on average oil prices of $15.35 per barrel and average gas prices of $2.18 per million British thermal unit (MMBTU).

The production output of foreign contractors makes up 95 percent of the country's total oil production.

Since 1996, contractors have maintained a production level of 1.4 million barrels per day.

Under an efficiency program, Pertamina plans to overhaul 22 of its platforms whose usage time has run out. Pertamina offers old platforms to contractors for no charge, under the condition that they cover demolition costs.

"Six of the 22 platforms have already been overhauled," Gatot said, citing as an example the Conoco Indonesia Inc. platform in Natuna, which is used by YPF-Maxus for its operations in South Sumatra.

Pertamina plans to reuse some of their old platforms to avoid the cost of demolishing them.

According to an audit by PricewaterhouseCoopers, the cost of demolishing Pertamina's 439 platform would total $650 million.

"Each platform we overhaul would save us between $1 million and $2 million in demolition costs," Gatot said.

Among the major projects scheduled for next year is oil and gas development in the deep waters of Makassar Strait by Unocal Indonesia Company.

Unocal would become the first company to develop Indonesia's oil and gas deepwater resources.

The company owns 50 percent of the block while the remaining 50 percent belongs to Mobil Oil Indonesia Inc.

To anticipate the implementation of the autonomy law, Pertamina plans to hold workshops on the oil and gas sector with regional administrations from various provinces, Gatot said.

"They (regional administrations) can either make a positive impact on this business or a negative one by increasing the length of the bureaucracy chain," he said. (03)