I

ndustry players are urging the government to finalize new regulations regarding contract extensions for oil and gas blocks, arguing that the energy industry is a high-cost business that requires efficient long-term planning.

In addition, new regulations are needed as several contracts are set to expire within the next five to 10 years.

According to some oil and gas companies, the enormous amount of capital required to maintain the hydrocarbon industry and the financial risks associated with exploration demand a clear regulatory framework.

Indonesian Petroleum Association (IPA) president Lukman Mahfoedz said that around 75 percent of oil and gas resources were located offshore, most of it in shallow and deepwater sections of eastern Indonesian waters. Accessing these resources would require the use of advanced technology as well as massive investments of capital.

Lukman said the government must decide soon on whether or not to extend the contracts that would expire in the coming years.

'€œWe need a specific regulation in order to attract investment. It [the regulation] should specify the positions of international oil companies and national oil companies,'€ Lukman said late last week.

The government'€™s indecision regarding the fate of the energy contracts has threatened to become a major energy security issue.

Almost 635,000 barrels of oil equivalent per day (boepd), an amount constituting 30 percent of the nation'€™s total oil and gas production, are generated by 20 companies whose production-sharing contracts are due to expire within the next five years.

In addition, around 61 percent of the current national production of 1.2 million boepd comes from oil and gas companies with contracts set to expire in the next 10 years.

'€œThe most important thing is the regulations must be clear and [the contract extension] issued in advance, before the contracts expire,'€ Lukman said.

Under current regulations, oil and gas companies (production-sharing contractors) are allowed to submit contract extension proposals for up to 10 years prior to expiration. However, there are currently no laws that define or regulate a time frame for a government decision on the extension proposals.

In the case of Siak, a block operated by Chevron, the government announced its decision to terminate the contract and return the block to state-owned Pertamina on the date of expiration.

'€œThe deadline [for a government decision] depends on the size of operation. For big projects, proposals should be submitted at least seven years before [the end of the contract],'€ said A. Noviyanto, vice president for finance with Total E&P Indonesie.

Total'€™s Mahakam block contract is set to expire in 2017.

All the uncertainty has made some companies uneasy, fearing that without the contract extensions, they will be unable to recoup the initial investment.

'€œ[Due to the uncertainty], some oil firms are hesitant to invest in drilling new wells because of the financial risk,'€ said Indonesia BP head Dharmawan Samsu.

Some industry players are expecting the government to make a decision soon in order to bolster industry confidence.

The Energy and Mineral Resources Ministry said earlier that it was mulling the issuance of a new regulation regarding oil and gas contract extensions.

In addition to maintaining production and increasing benefits for the government, Deputy Energy and Mineral Resources Minister Susilo Siswoutomo said this new regulation would establish a timetable regulating government responses to contract extension proposals. It remains unclear when the new regulation will be revealed.