BP Migas to cut mandatory exploration period

Ika Krismantari, The Jakarta Post, Jakarta

The Upstream Oil and Gas Executive Agency, or BPMigas, is considering shortening the mandatory exploration period in the oil and gas sector to three years from 10 years to speed up exploration at newly awarded oil and gas blocks.

BPMigas chairman Kardaya Warnika said here Tuesday if oil and gas companies failed to find oil or gas reserves during the three-year period, they would have to return the concession areas to the government.

Should the companies succeed in finding oil or gas reserves during the period, they would be not be given deadlines for conducting drilling activities, he said.

Under the current regulation, oil and gas contractors are given 10 years to carry out exploration and drilling activities, or the government will revoke their rights.

"We plan to exclude drilling activities from the list of commitments stated in the exploration stage. We are aware that drilling can be done only if the feasibility study proves that reserves are available. If there are not any, we don't have to do the drilling," Kardaya said.

He hoped that under the new arrangement, the government would be able to meet its target of a 30 percent increase in oil and gas production by 2009.

The country's oil production has been suffering a downward trend, with oil production declining from 1.3 million barrels per day in 2001 to about 950,000 barrels per day this year, according to data from the Energy and Mineral Resources Ministry.

Indonesian gas production has also declined, from 8.6 billion cubic feet per day in 2003 to 8.1 billion cubic feet per day in 2006 and an estimated 8 billion cubic feet per day this year.

This decline in production is mainly the result of falling production at aging oil and gas fields.

In another effort to boost the country's oil production, the government said earlier it planned to offer companies developing new oil and gas concessions in deep sea and frontier areas more favorable production splits.

Director general of oil and gas Luluk Sumiarso said recently that under the planned production sharing scheme, oil and gas companies operating in deep sea and remote areas would receive 49 percent of the net production, while the government would take 51 percent.

This offer is far better than the government's current arrangement, under which investors receive 15 percent and 30 percent, respectively, from oil and gas production.

With those plans on the table, Kardaya was optimistic oil production would increase to around 100,000 barrels per day next year, meeting the production target of 1.03 million barrels of oil set by the government in the 2008 state budget.