The Indonesian Petroleum Association (IPA) believes the cost recovery policy could potentially depress oil production. “Not only reduce production, the regulation is predicted to reduce the interest of foreign investors in investing,” said IPA President Ron Aston in Jakarta late last week.
According to Aston, this would not benefit the government. With economic growth reaching 6.5 percent in the first quarter of this year, Indonesia needs up to three times more investment in meeting its future energy needs.
Oil and gas companies along with the government are having intense discussions regarding Government Regulation Number 79 regarding Cost Recovery and the Treatment of Income Tax in the Upstream Oil & Gas Sector.
The regulation is seen as unilaterally modifying the principles in the shared production contract thus creating uncertainty for oil shared production contracts in the future. The impacts are a decline of up to 20 percent of oil & gas investments and a fall of 150,000 barrels of oil equivalent a day.
IPA Vice President, Sammy Hamzah, stated that the reduction would happen because, by limiting the production cost recovery, then contractor’s efforts in producing oil will no longer be maximal. “Applying the Government Regulation is sure to reduce the cost recovery, but it oil production will also fall,” he said.
Currently oil and gas contractors, said Sammy, are struggling to maintain production in meeting government targets. Meanwhile, in order to maintain the production rate, contractors must be able to overcome a natural production decline of 12-15 percent each year.
Through their attorney, Todung Mulya Lubis, IPA filed a judicial review of the cost recovery regulation to the Supreme Court on June 16. Mulya Lubis explained, at least 23 items were requested to be reviewed because of contradictions to higher regulations, such as Oil & Gas Law Number 22/ 2001.
Director General for Oil and Gas, Ministry of Energy and Mineral Resources, Evita Herawai Legowo stated, as a solution, the government is preparing more detailed technical regulations regarding cost recovery. The regulation is hoped to answer the oil and gas contractors’ concerns.