Govt prepares new regulation to boost oil, gas exploration

The Energy and Mineral Resources Ministry is currently preparing a new regulation to boost oil and gas exploration in the country.

The director general for oil and gas at the ministry , Evita Herawati Legowo, said in Jakarta on Tuesday that the planned regulation might contain clauses on incentives for contractors, which successfully fulfilled their exploration commitments and disincentives for those failing to meet their commitments.

“We’ve begun discussing the content of the regulation, but nothing can be disclosed now. The regulation aims to encourage oil and gas contractors to boost exploration activities and apply enhanced oil recovery technologies to ramp up production in the future,” she told reporters at the Asia Pacific Oil & Gas Conference and Exhibition 2011 in Jakarta on Tuesday.

Currently, there are 259 oil and gas contractors operating in Indonesia. Fifty-seven contractors have entered the production phase, while the remaining 202 are still doing exploration activities, 23 of them looking for coal bed methane (CBM).

Out of 179 contractors running explorations activities in the oil and natural gas sector, only 30 have fulfilled their exploration commitments. As a response, upstream oil and gas regulator BPMigas plans to summon the 149 contractors who failed to realize their promises.

In his speech at the opening ceremony of the event, Coordinating Economic Minister Hatta Rajasa said that to increase the country’s oil and gas production, the government had to attract more investment and offer more oil concession working areas.

“To ensure oil and gas supply in the future, we have to increase investment.

To attract investment, we have to solve problems that discourage investment like overlapping land and disagreements on the cost recovery regulation,” he said.

The cost recovery regulation stipulates that the government will reimburse oil and gas contractors’ expenses after their concession areas began commercial production. The payments would be made with state funds annually.

Hatta reported that the government planned to conduct a study on the current government decree on cost recovery following a judicial review request on the decree submitted by the Indonesian Petroleum Association (IPA).

“I want the government to conduct a study on the cost recovery decree to fix it,” he said.

There had to be a critical review to check the connection between the country’s declining oil production and the regulation on cost recovery, he added.

The most important thing was, he said, people had to understand that increased cost recovery spent by the government was not linear to increased oil production.

Hatta cited an example that in the past, an oil well might produce 1,000 barrels of oil per day. Now, production has increased to 2,000 barrels but 1,900 barrels were water not oil, he added.

“The impact is that the cost recovery payment soars [although production declines] because we have to spend money to treat the water,” he argued.

According to BPMigas, which supervises cost recovery reimbursement, the government paid US$11.95 billion for cost recovery in 2010. BPMigas chair R. Priyono estimated that cost recovery payments would be between $12 billion and $13 billion this year.