Oil and gas firms to get bigger shares of products

Ika Krismantari, The Jakarta Post, Jakarta

In another effort to help boost the country's dwindling oil production, the government plans 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 at the International Investment Summit here Tuesday 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 arrangements, under which investors receive 15 percent and 30 percent, respectively, from oil and gas production.

"The new production sharing scheme will be given to those willing to develop in oil and gas blocks located in deep sea and remote areas. We offer this new scheme as a form of incentive for them to start operations in areas where there is no supporting infrastructure," Luluk said.

Last month, the government invited bids for the development of 26 oil and gas blocks mostly located in deep sea and remote areas such as the Semai oil block in Papua.

In addition to this new production sharing scheme, the government also plans to apply the new cost recovery system in the new contracts, Energy and Mineral Resources Ministry Purnomo Yusgiantoro said.

"We will clarify some vague areas to avoid misinterpretation of the items that are recoverable. Until now, we are still discussing some issues. Even though we have agreed that the cost for corporate social responsibility is no longer included in the recoverable items," Purnomo said.

Under the production sharing scheme, oil and gas contractors are allowed to recover their operating costs. But some operators have included spending on activities not related to production, such corporate social responsibility projects.

Purnomo said the changes in the cost recovery assessment would not affect existing production sharing contracts.

Besides providing incentives in the oil and gas sector, the government also plans to offer incentives to investors engaged in the development of coal bed methane (CBM), a new alternative energy.

"We realize that the development of CBM is not easy as it requires a lot of time and budget. Therefore, we are thinking to provide the new players coming to this sector with incentives," Purnomo said.

Under the planned incentive formula, like the one in the oil and gas blocks in remote areas, the CBM investors will be given a 49 percent share of production, while the government will receive the other 51 percent.

With the country's oil production consistently showing a downward trend in the last five years, the government is seeking alternatives to secure its energy supply.

With total reserves of 453 trillion cubic feet, or about 81.5 billion barrels of oil equivalent, CBM is a promising energy source for the country, whose oil production has been slowly declining to 950 million barrels of oil per day from 1.3 million barrels per day in 2001.

Despite an effort to capitalize other energy resources, the government has also stepped up efforts to encourage oil companies to boost exploration projects.

Under the short-term goal, the government plans to increase its oil production by 30 percent to almost 1.3 million barrels per day by 2009.