Friday, May 20, 2011
Knight Ridder/Tribune Business News
Most oil executives and hydrocarbon analysts agree Indonesia still has basins with large reserves and its geological prospect is quite attractive with the success ratio of oil prospecting among the highest in the world.
But that seems far from sufficient to woo new investors, as the steady fall in the country's oil and gas production and its decline from a major exporter into a net oil importer have proven. The upstream oil and gas regulatory body (BP Migas) itself acknowledged last week the average daily oil output during the first quarter was less than 900,000 barrels, far below the target of 970,000 bbl.
Last year, Indonesia also failed to achieve its output target of 965,00 bbl, lifting only 954,000 bbl.
Another piece of discouraging news, as purveyed by BP Migas executive Iwan Ratman, is that the implementation of 10 percent of exploration and production development projects this year fell behind schedule due to overlapping concession areas, arduous licensing procedures within regional administrations and land acquisition problems.
Even state oil company Pertamina suffered many delays in exploration works: It planned to drill 147 new wells this year but managed to complete only 25 wells in the first quarter. Worse still many producing fields suffered from unscheduled shutdowns, power-supply disruptions and damages to pipelines.
The three-day 35th annual oil and gas industry convention and exhibition of the Indonesian Petroleum Association which opened on Wednesday should be a great opportunity for the government and oil executives to thrash out the most pressing problems that stand between investors and the geological prospect.
The theme of the convention "Indonesia energy, growth, security and sustainability" fits well with the current situation Indonesia is facing within the hydrocarbon industry.
President Susilo Bambang Yudhoyono pledged at the opening of the 33rd IPA convention in 2009 to resolve regulatory, bureaucratic problems and lack of legal uncertainty that had affected the petroleum industry.
But there remained big concerns about uncertainty over cost-recovery regulations, corruption, interference by government agencies, the sanctity of contracts and the general regulatory structure of the upstream and downstream oil and gas industry. Legal and regulatory uncertainty and inefficient bureaucracy are especially inimical to investors in the upstream segment of the industry as this business involves high risks and requires big capital.
The hydrocarbon industry requires an even better investment climate now because most of the undiscovered, prospective basins are located in frontier, eastern areas.
The eastern regions have potentially big reserves that are not proven yet, but their prospecting requires sophisticated technology and huge investment, estimated at 10 times as large as those in Java and Sumatra, thereby involving bigger risks. Only by increasing proven oil and gas reserves will Indonesia be able to make its production sustainable and sufficient to meet its steadily rising consumption along with the constant expansion of its economy.
But the only way to enlarge its proven hydrocarbon reserves is to increase investment in exploration.
Copyright (c) 2011, The Jakarta Post, Indonesia / Asia News Network
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