Uncertainty halts oil investment
Leony Aurora, The Jakarta Post, Jakarta
Legal uncertainty as well as lengthy bureaucratic procedures are the main reasons for the lack of investment in oil and gas exploration activities, the top executive of the Indonesian Petroleum Association (IPA) says.
Regulatory risk -- whether it is a change in regulation, government's share or taxation rules -- is not something that oil and gas producers can manage, IPA president Chris Newton said on Thursday.
"It's outside of their control," said Newton, who is also the CEO of the country's second largest private oil and gas company PT Energi Mega Persada, at a media briefing on IPA's convention next week.
He cited how the terms stated in the production sharing contracts (PSC) were inconsistent with that stipulated in the taxation law.
"I'm not complaining about the level of taxation, but what we need to know as investors is how much tax? At the moment there is no certainty," said Newton.
According to the IPA, the level of investment for exploration is at a historical low, with some US$500 million spent last year. The ideal annual investment on exploration should be above $1 billion.
Newton said the country would see its oil output halve by the next decade if it relied only on the current producing fields, 75 percent of which are aging.
Indonesia is currently pumping some 1.06 million barrels per day (bpd) of crude oil and condensate, about a third lower than the 1.6 million bpd produced in 1996.
Another problem faced by the industry is bureaucracy, said Newton. Engineers and geologists are spending more time filling out forms than studying well logs, he added.
"Let's have a regulator that facilitates and enables investment rather than command and control," he said.
He acknowledged that the new government has shown more understanding for the unique characteristic of the sector, but said that "going from understanding to solutions has been slower than expected".
The government aims to increase oil production to as much as 1.3 million bpd by 2008, relying heavily on the expected production of 170,000 bpd from the untapped Cepu block, located on the border of East Java and Central Java, and at least 50,000 bpd from Jeruk field, south of Madura island in East Java.
"It's a stretched target, but possible with a lot of more investment and quite a lot of luck," Newton said.
IPA plans to hold its 30th annual convention and exhibition next week, themed: The urgency of building competitiveness to attract oil and gas investment. President Susilo Bambang Yudhoyono is slated to open the three-day event starting on Aug. 30.
Prominent figures scheduled to speak at the convention include Minister of Energy and Mineral Resources Purnomo Yusgiantoro, chairman and CEO of Chevron David O'Reilly and Jim Slutz of the U.S. Department of Energy.
Some 96 exhibitors are expected to occupy over 2,000 square meters of exhibition space in the Jakarta Convention Center in Senayan, Central Jakarta.