Indonesian president calls for oil and gas industry rejuvenation

Jan. 1, 2006
New laws aim to resolve regulatory uncertainty, boost investment

Gurdip Singh, Special Correspondent

New laws aim to resolve regulatory uncertainty, boost investment

Indonesian President Susilo Bambang Yud- hoyono has emphasized that his country still needs the oil sector, although the government has been promoting the importance of non-oil/gas sector in developing the national economy.

“But there is a daunting array of tasks that we must tackle before we can successfully address all the concerns and problems of the oil and gas sector,” he told the industry at the recent Indonesian Petroleum Association’s (IPA) annual convention.

He called on the oil companies to work with the government to overcome the problems faced by the sector and boost output to 1.4 MMb/d from the current low level of 1.1 MMb/d. Susilo has set an immediate target for the industry to lift production to 1.3 MMb/d by 2009 and urged the industry to play an important role as the country’s partner by investing in the opportunities.

There remain immense resources, and the country needs help to tap this potential. “There are many deposits out there just waiting to be found. Cepu, Papua, South Sumatra, Sulawesi, and East Kalimantan are just some of the exciting news of late,” he said, referring to recent discoveries.

Supporting the presidential address at the IPA convention, official data shows that Indonesia has proven oil reserves of 4.3 Bbbl and potential of 4.31 Bbbl. The country has 97.8 tcf of proven natural gas reserves and potential of another 90.33 tcf.

Meanwhile, the upstream industry said it was confident of rejuvenating the country’s oil and gas industry.

“The falling investment in exploration is partly a global phenomenon that is starting to reverse as the industry is cash long, opportunity short, and struggling with reserves replacement ratios,” said IPA’s president Chris Newton.

Foreign investment

While pledging industry support, he highlighted the challenges being faced by the industry, especially the multitude of legal, regulatory, and fiscal uncertainties that have confronted investors, especially those exposed to the fundamental changes in transitioning the new oil and gas law, which has already affected investment levels.

Newton also pointed out that high oil prices would not accelerate investment levels, as Indonesia’s competitors have also increased their efforts to improve their relative attractiveness.

The drive to attract foreign direct investment is significantly more competitive globally today than at any time in the past decade, he stressed. High oil prices are a global phenomena and Indonesia has to transparently compete with more countries than ever before for its share of that investment, he added.

The Indonesian upstream industry, largely dominated by oil majors, was encouraged by the government’s recent initiatives to resolve issues such as the value-added tax reimbursement, exploration taxation, and incentives for marginal oil fields.

“We need to maintain the momentum and resolve the residual issues,” Newton added.

He also noted the government’s recent policy initiatives to promote the use of natural gas in the domestic market.

Newton said the Indonesian industry was optimistic of a turnaround in the coming years based on a number of factors, including the improvement in macro economy and political stability.

“We have gradually improving regulatory clarity with a new oil and gas law and most of it is supporting regulations in place,” he told some 2,500 industry delegates at the IPA convention.

Upstream investment is being encouraged by the inherent geological prospects, high oil prices, rising domestic gas demand, and a turnaround of the regional LNG market, he continued.

A global shift back to exploration presents Indonesia with the opportunity to recapture its fair share of global exploration investment, while an increasing number of local and regional players with new skills and cost structures are ready to take their rightful place in a maturing industry, he stated.

But reflecting the industry’s views, Newton called on the government to look after existing investors and rapidly resolve their problems. The government should take a global perspective and recognize the capital flow to countries with the highest risk-weighted returns.

He also called upon the government to maintain the regulatory reform momentum and recognize that rapid resolution of remaining uncertainty would quickly promote new investment.

The industry would like to see a new partnership between regulators and investors and support for the development of domestic capital markets as a source of debt and equity funding for local participants, said Newton.

David J. O’Reilly, chairman and CEO of Chevron Corp., expanded on the role of energy partnership in building the Indonesian economy.

Chevron’s major projects in Indonesia include the Duri field in Riau province and the recent expansion in the country following the acquisition of Unocal, one of the major Indonesian concession holders.

Noting the Asia Pacific Energy Resource Center’s estimates that Indonesia needs more than $60 billion investment for the energy sector through 2020, O’Reilly urged the government to continue to reform its legal and regulatory processes, particularly with regard to contract sanctity, a fundamental concern to energy companies doing business in the country.

“In order to make long-term investments, energy companies and indeed all foreign investors, must be assured that the government at all levels will honor the terms of production sharing contracts and other agreements,” he said.

O’Reilly also assured the audience that Unocal’s planned field development programs in East Kalimantan would be continued to support the Bontang LNG plant, the largest LNG exporting hub of the country.

He noted the potential of new discoveries in East Kalimantan, one of Indonesia’s largest gas-bearing regions and said that Chevron will continue to fulfill the Asian LNG market commitment.

Chevron will continue with Unocal plans to raise natural gas production to 1 bcf/d by developing Gendaoalo, Gehem, Sadewa, and Sapi fields between 2006 and 2012.

Ongoing projects and future plans

Elsewhere, ConocoPhillips is to produce first gas from the Kerisi and Hiu oil and gas fields in its block B concession in the Natuna Sea of Indonesia by November 2006. It is to add a compressing and processing platform, a wellhead platform, and subsea links to existing fields within block B, including the Belanak field.

Another mid-term field development plan of ConocoPhillips includes the North Belut field after the development of Kerisi and Hiu. It will also add a compression and processing platform as well as wellhead platform in the field, the largest development after the Belanak field began production last year. It is also hoping to complete internal front end engineering and design (FEED) of the North Belut field, to be implemented after bringing Kerisi and Hiu to production after 2007.

ConocoPhillips, INPEX of Japan, and Chevron Corp. have had the block B license extended to 2028 from 1998. The block, under exploration since 1968, has two matured oil fields and 16 gas fields in various phases of production and development.

INPEX is also evaluating various options for developing the Abadi gas field in Indonesia’s deepwater Masela block. It will be appraising the block’s estimated 5 tcf of reserves through three to four wells next year, followed by an initial development plan in 2007 and final decision in 2008, according to INPEX officials. One option being considered is a 400-km pipeline across the Indonesia-Australia border to the proposed Darwin LNG plant. INPEX is the operator of Masela block and neighboring Western Australia block Wa-285-P, where it is working on developing the Ichthys oil and condensate field for production by 2010.

Amerada Hess is working on a $450-million liquid development project, part of the second phase of Ujung Pangkah field, in the Madura Strait, northeast of Java. It aims to produce first oil in 2Q 2007. The company is seeking approval from the Indonesian upstream authority, BPMIGAS, and hopes to complete the FEED for a compression platform and two wellhead platforms by end of this year. Amerada Hess Project Services Coordinator Agus Aminoto said the company plans to bring into production Phase I gas and condensate development at Ujung Pangkah in early 2007. It is investing $60 million on the offshore facilities, including a 40-km, 18-in. pipeline in the field in Pangkah block, the production-sharing contract for which was signed in 1998.

US-based Anadarko is to invest $130 million over the next three years. The exploration program will start with four of the six wells to be drilled in its North-East Madura II block, said Anadarko President and General Manager Greg Lanham.

The Indonesian-owned PT Energi Mega Persada is working on $275 million worth of field development projects to increase gas production to 350 Mcf/d in the coming years from the current 150 Mcf/d level.

The first priority is to develop untapped reserves, said its President, Director and CEO, Chris Newton. Newton, who also serves as IPA president, said the company was targeting 1 tcf of gas reserves in the Terang, Sirasun, and Batur fields in the Kangean block. The fields, to be onstream by 2007, form the largest undeveloped proven gas reserves in the East Java market, he said.

Energi Mega Persada has completed 95% of the FEED work for the project, which would include a gas processing barge with subsea pipeline linked to the East Java trunkline. Energi Mega Persada has also lined up the development of Rancak, Ngimbang, and East Spur gas reservoirs in the Pagerungan gas complex.