Upstream oil and gas regulator BPMIGAS says many oil and gas contractors are holding their investments following state-run oil company Pertamina's aggression in acquiring blocks nearing the expiration of their contracts.
BPMIGAS operation deputy Rudi Rubiandini cited the production decline of Total E&P Indonesie, which was estimated to have dropped by 30,000 barrels of oil per day (bpd) due to uncertainty over its contract extension. Foreign contractors have shied away from further investing resources in maintaining or boosting production levels, learning an important lesson from the experience of Korea-based Kodeco Energy, whose contract for the West Madura offshore (WMO) block was not extended last year despite the company's huge investments in its past five years there, he said.
"Kodeco's production rate increased over the past five years of its presence at WMO, but what they got was not a reward in terms of a contract extension, but a termination. Pertamina was then appointed as the operator of the block starting May 7 last year," Rudi continued. "The decision has cast a negative image on Indonesia's investment climate, which is now leading to difficulties in our efforts to ramp up oil production. But of course, other technical and non-technical problems also contribute to those difficulties," he added. As of March 1, the country's oil output was only 885,443 bpd. According to BPMIGAS's data, there are 31 oil contractors failing to reach targets set by the government in the revised draft of 2012 state budget. Among the contractors missing their targets are Chevron Pacific Indonesia, which fell 5,501 bpd short of its target of 357,200, Total EP Indonesia (12,469 bpd of its target of 85,500 bpd), Pertamina EP (10,972 bpd of 135,000 bpd) and Pertamina Hulu Energi-WMO (10,499 bpd of 23,000 bpd). The revised draft of the 2012 state budget stipulates that the oil production target is revised from 950,000 to 930,000 bpd. However, from the work plan and budget submitted by companies, the production rate is set at only 890,874 bpd. The vice chairman of the Indonesian Petroleum Association (IPA), Sammy Hamzah, said that the main cause behind investors' hesitation was legal uncertainty. "The core issue is about uncertainty - whether contracts will be extended or not," he told reporters over the phone. He said according to the 2001 Oil and Gas Law, contractors could propose a contract extension to the government 10 years before the contract's expiration in order to provide a degree of certainty for investment plans. However, he acknowledged the WMO experience had sent a bad message to investors. The government granted the right to operate the WMO block to Pertamina on May 5, just a day before the contract expired.