Indonesia seeks to attract more oil investment

 In the face of a rapidly changing global oil and gas landscape that is forcing international oil companies to rebalance their assets around the world, Indonesia’s President, Susilo Bambang Yudhoyono is offering fresh incentives to boost investment in the nation’s critical oil and gas sector.

“What is needed is clarity, certainty and consistency (in the legal framework),” Yudhoyono said in his address to the Indonesian Petroleum Association convention, at the same time Nigeria is tightening its fiscal regimes and creating more uncertainty around the rules of engagement with IOCs.

“Laws must be able to meet the needs and aspirations of investors,” the Indonesian leader told delegates, and announced that he had already given clear instructions to the Ministry of Energy & Mineral resources to continue to improve the investment climate.

“We will cut bureaucracy, make the approvals process more efficient and implement it more speedily,” said Yudhoyono.

The president has set up a taskforce led by Co-ordinating Minister for Economy Affairs, Hatta Rajasa, to come up with new, greater incentives intended to spur investment in Indonesia’s oil and gas industry.

Yudhoyono admitted that it was becoming more difficult and expensive to discover new hydrocarbon resources against the backdrop of increasing domestic gas demand.

“There is a new paradigm to increase domestic supply as a priority,” he told delegates.

IPA president Lukman Mahfoedz called on Yudhoyono to implement new incentives, especially for exploration, enhanced oil recovery, deep-water and non-conventional hydrocarbon projects such as shale gas and coal bed methane, ahead of next year’s general election. Mahfoedz said that the challenges facing the oil and gas industry, locally and internationally are “very great”.

“[However], if the oil and gas industry stops for even one minute ,there will be chaos,” said Mahfoedz.

New oil and gas finds in Indonesia in 2012 accounted for a small part of South-East Asia’s total.

In contrast, companies in neighbouring Malaysia last year discovered 1.4 billion barrels of oil equivalent, according to the IPA — about 72% of the region’s total.

Indonesia’s reserves replacement ratio in 2012 was 127% for gas but just 52% for oil, a situation that needs to be addressed quickly if the liquids production decline is to be arrested. Crude and condensate output last year stood at 861,000 barrels per day, almost 50% down on the peak production of 1.6 million bpd that was achieved in 1995.

Stepping up exploration and development drilling is crucial to boosting production.

However, only 65 of the 92 development wells targeted in January were drilled, while February saw only 53 of the 107 targeted development wells being drilled, according to the IPA.

“Many reasons contribute to this inefficiency, not only technical but also non-technical issues such as land permit and clearance, licensing procedures, even conflicting regulations,” said the association.