Oil exploration slows: BP Migas

The Jakarta Post , Jakarta

Oil and gas exploration activities in the country have been on the decline in recent years, as investors have postponed investment plans due to unfavorable fiscal policy and uncertainty in the regions.

Oil and gas upstream regulatory agency (BP Migas) head Rachmat Sudibyo said some investors that had obtained new contracts decided to suspend exploration activities because of problems with local communities and the government's new fiscal policy.

"Although they have obtained new contracts it has not been easy for them to start exploration because of these issues," Rachmat said on Friday.

According to the latest BP Migas data, only 75 oil wells were drilled of a planned 117 in 2002. Some 112 oil wells were planned for exploration in 2003 but only 54 were drilled. This year, 114 oil wells are planned for exploratory drilling but as of June, only 19 had commenced.

New exploration is important to maintain both annual production rates and a reserve availability for future consumption.

One of the main problems that slowed down exploration activities was the government's decision to drop the lex specialis tax policy for the mining industry.

The previous policy provided investors with duty-free facilities for importing materials used in oil and gas exploration and production activities.

"Investors are confused because they have to pay tax even before they obtain oil or natural gas from exploration. So they put their exploration on hold until this issue was sorted out," Rachmat said.

In the past, investors paid taxes if exploration was successful in producing oil or natural gas.

The Ministry of Energy and Mineral Resources and the Ministry of Finance are still discussing the issue.

The tax policy also prompted the government to delay putting to tender 10 oil and gas blocks this year.

Land disputes with local communities are also another problem facing investors in regions, Rachmat said.

"It is difficult to free sites for exploration activities in the regions," he added.

Rachmat warned that delays in exploration would affect the country's future crude oil production.

According to the BP 2003 Statistical Review of World Energy, Indonesia produced 1.179 million barrels (mb) of crude oil and condensate. It was much lower than the 1.288 mb and 1.389 mb in 2002 and 2001 respectively.

Currently, oil production is well below the output target set by the Organization of Petroleum Exporting Countries (OPEC), of which Indonesia is the only Southeast Asian member country.

Ibox

Programed and realized exploratory drilling

Number of wells ---------------------------------------------------------------------

2001 2002 2003 2004 ----------------------------------------------------------------------- Planned exploration 144 117 112 114

Realized exploration 87 75 54 19 ---------------------------------------------------------------------- Source: BP Migas