Jan 27, 2013

Indonesia - Government to Tackle Oil and Gas ‘Brokers’ on Exploration

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Frustrated over the low realization of investment commitment in the exploration of oil and gas sector, the government will tighten its supervision over oil and gas companies’ activities in the country, aiming to single out obscure firms.

Susilo Siswoutomo, the newly appointed deputy at the Energy and Mineral Resources Ministry, said that the government had detected the presence of “brokers” in oil and gas industries, particularly during the exploration activities.

“There are firms that have secured the exploration rights but never performed any exploration activities. Instead these firms are busy offering the rights to other firms,” Susilo told the Jakarta Globe on Thursday.

“There will be a sanction [for these companies],” said the deputy minister without further elaboration. Most of th e“brokers” are firms that cannot afford to perform expensive and risky exploration activities. Susilo called on oil and gas firms operating in the country to abide by government-approved annual work and budget programs so that the country can meet its production and revenue targets. “These stricter supervisions would also be useful to hear their problems and concerns so that the government can be more helpful,” he added.

Typically, oil and gas firms must submit their work and budget programs ­— consisting mainly of investment projection, production targets and progress reports — to the government every year.

The investment realization for oil and gas exploration activities last year was $160 million of a projected $2 billion.

Susilo acknowledged that it was simplistic to put all the blame of low investment realization on the presence of “brokers,” because exploration activities require a lot of investment and the risk of finding a dry well is very high.

One very recent case involved Statoil. The Norwegian firm, together with partner Pertamina Hulu Energi (PHE), had spent as much as $271 million over six years for exploration and had not found enough reserves. Both decided to return the rights to the government. There are plans to provide tax exemptions for oil and gas companies during exploration stages, Susilo added. “But remember it would be only for exploration activities. Once they start production the tax obligation will return to normal.” His statement echoed views of Energy Minister Jero Wacik, that the government planned to provide more incentives to encourage exploration.

Indonesia has seen insufficient exploration activities of late, aggravating the fact that most of the country’s oil fields have entered their mature phase. The government approved 274 work and budget programs for 2013, which include 200 working areas in the exploitation stage and 74 in the exploration stage. A total of $26.2 billion will be invested in the oil and gas industry this year, but only $2.3 billion will go to exploration.

Tito Summa Siahaan

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