Page 7 - AsianOil Week 44

AsianOil SOUTHEAST ASIA AsianOil
90 80 70 60 50 40 30 20
2009 2010
2011 2012
Production
2013 2014
Consumption
2015 2016 Exports
2017 2018
Data: BP
Indonesia's gas balance
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fields alongside Pertamina. Moreover, the draft would create the country’s first state petroleum fund financed by government revenue received from the upstream industry.
As of June, however, very little progress appeared to have been made, with the Ministry of Energy and Mineral Resources revealing that it was still waiting for an invitation to appear before Parliament to discuss the revision of the legislation.
While the government mulls over widespread reforms, some initiatives have been pushed through, though with mixed results.
Political initiatives
In the interest of cementing Pertamina’s posi- tion within the domestic industry Jakarta has been driving the company to take over expiring licences.
While the state wants Pertamina to assume operatorship of the country’s biggest oil and gas blocks, securing a bigger share of production for the country, Jakarta is overloading the company in the process. The government handed over control of the Rokan onshore oil block as well as the offshore Mahakam oil and gas field to the state company when the time came to renew their contracts. These are multi-billion dollar developments the size of which the company has little experience in managing. Pertamina came under fire earlier this year after output at Mahakam fell below its target.
While the government had been widely expected to adopt a similar strategy with the Corridor block, Jakarta wrong-footed observers.
The government opted to extend the Corri- dor production-sharing contract (PSC) by 20 years until 2043 with ConocoPhillips, Repsol and Pertamina, with the national oil company (NOC) set to take an increased stake in the licence. The consortium will slowly transfer operational control to Pertamina.
While the companies themselves talked up the “win-win” deal, the agreement itself speaks
to Jakarta’s bit-piece approach to the upstream. It is a strategy that lacks clarity around how the government intends to tighten its grip over the resource sector whilst boosting output under Pertamina’s lead. Moreover, the creation of a new state oil company only serves to muddy the waters further, given that it will lack much- needed development experience.
However, government efforts on the gross- split scheme – which was introduced in 2017 – appear to have found more success. The new rules brought greater predictability to the licens- ing process and introduced financial incen- tives for challenging upstream developments. The country’s reserve replacement ratio (RRR) climbed from 55% in 2017 to a seven-year high of 106% in 2018.
What next
Widodo’s pursuit of greater control of the resources sector will not necessarily send foreign investors running for the hills. A bureaucratic quagmire will, however.
The government needs to show investors it has a long-term cohesive strategy for the sec- tor that will benefit those willing to commit to exploration. Part of that is being able to demon- strate that progress is being made on reforming the country’s oil and gas laws. This year was an election year, which could explain why deci- sion-making has slowed, but that excuse will not fly forever.
Widodo needs to bring together the various interests in his coalition in order to craft oil and gas legislation, which is no small order. If he fails to do this then the country’s declining oil production will only worsen, owing to the lack of major upstream developments poised to replace dwindling output from mature fields across the country.
Taking control of the country’s oil and gas resources is one thing; doing so in a way that bolsters foreign investor confidence is another entirely.™
Week 45 06•November•2019 w w w . N E W S B A S E . c o m P7
bcm per year