Oil production to improve next year: BP Migas

Oil production to improve next year: BP Migas

Fitri Wulandari, The Jakarta Post, Jakarta

The government expects oil production to improve next year on
the back of a better investment climate in the oil and gas
industry.

Rachmat Sudibyo, head of the oil and gas upstream regulator
(BP Migas) said the country's oil production had indeed been
declining in recent years due to natural depletion at oil wells
and a lack of new investment.

However, he added, recent new oil discoveries would improve
declining oil production.

"We have many new discoveries that have not been developed. It
would need at least three years to develop them as far as initial
production," Sudibyo told The Jakarta Post recently.

"But by next year, we expect production to improve," he added.

Indonesia's oil industry had been in the doldrums for the past
few years as investment has been thin due to the financial crisis
in 1997.

Once known as one of the world's top oil producers, Indonesia
produced 1.081 million barrels of oil per day (bpd) in 2003. That
was lower than the production quota set by the Organization of
Petroleum Exporting Countries (OPEC) of around 1.316 million bpd.

Rachmat said the government was targeting oil production to
reach 1.15 million bpd this year.

Rachmat added declining oil production has caused concern over
domestic energy supplies, which were highly dependent on oil-
based fuel.

Oil-based fuel consumption stood at 57.4 million kiloliters as
of 2003, mostly for transportation. To fulfill domestic oil-based
fuel consumption, the government still imports both crude oil and
oil-based products.

With current proven reserves at around 4.7 billion barrels of
oil, Rachmat said they were sufficient for 10 years given the
nation's high, fuel-based consumption.

"The key is how to find a balance between oil production and
new discoveries so that we can conserve oil for longer," he said.

Based on data from BP Migas, Indonesia produces 400 million to
500 million barrels of oil per annum. Thus, it needs a similar
quantity in new oil discoveries.

Rachmat added the government was also pushing for energy
diversification to cut oil-based fuel consumption.

As for investment, Rachmat said investment in the oil sector
was still attractive. Last year, the government signed 15 new oil
and gas contracts with a total exploration commitment standing at
US$ 140.9 million.

According to Rachmat, existing investment in the oil sector
stood at $2 billion at present and investors' total spending in
exploration activities reached $7 billion.

"Investment in the oil sector is still good," Rachmat said.

The government has also opened tenders for new acreages this
year.

The government is also offering a better revenue split to oil
investors who are willing to invest for oil exploration in remote
areas such as deep-water sites.

For example, the revenue split for oil exploration would be 85
percent for the government and the rest for investors. In remote
areas, the split could be 80 percent against 20 percent, or even
higher.

"It is their money at stake so ... as with gambling, the offer
should be more attractive," Rachmat said.

Despite such offers, Rachmat said many oil acreages had still
to attract investors. Rachmat added the government would review
those areas before reoffering them to investors.