Regulation Constrains Oil and Gas Exploration’: BPMigas

Senin, 10 September 2012 | 10:24

Oil and gas regulator BPMigas cites factors such as permit issuance, overlapping rules in land ownership and other social issues as the reason why Indonesia has seen few exploration activities in the past couple of years.BPMigas identified that of 121 exploration contract holders in a three-year period, 69 of them have yet to fulfill their commitment.

“From our assessment, external factors were the main constraints for these 69 contractors,” said Johanes Widjonarko, the regulator deputy chief, on Friday.

Some 33 percent of the 69 contract holders considered external factors, like permit issuance and overlaps in land ownership, as the main constraints. BPMigas also said that internal factors, such as financial issues and operating rights, impeded the activities of 24 percent of the 69 contract holders.

These internal factors, BPMigas said, were occurring because the oil and gas industry is capital-intense as well as high risk.

“That’s why some contract holders offered their stakes in order to share the risk.”

Contract holders, Johanes said, have the right to share the risk, according to existing regulation.

“The regulation stated that contract holders cannot relinquish their shares or their operating rights before the first three-year period is passed,” he added.

Oil and gas giant BP reported in June that Indonesia, a former OPEC member, had 4 billion barrels of proven oil reserves last year, down from 5.9 billion barrels in 1991. The rate was higher than that of any other Asian country, including India and China, even though both countries have consumed more oil than Indonesia.

Last week, the directorate general of oil and gas at the Energy and Mineral Resources Ministry awarded only one exploration right out of five oil and gas working areas previously offered.

It was the latest case on how exploration activities were lagging behind, despite the fact that Southeast Asia’s largest economy needs more energy to fuel its ambition to become among the top 10 largest economies in the world by 2025.

According to Christof Ruehl, BP’s chief economist, Indonesia would see an increase in investment by introducing separate systems for exploration and production stages in the oil and gas industry. He said the production sharing contract system should be implemented during the exploration phase.

“If the contractors found oil and reserves then they will get cost recovery funds to encourage them to conduct more exploration activities,” he added.

After a certain period in the production stage, he said, the system has to switch to the royalty contract in which the contractors pay a certain share of the revenue to the government.

“The sequences are probably the international best practices [in the oil and gas industry],” Ruehl added.

by Tito Summa Siahaan