Uncertainty halts oil investment

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.