Page 7 - AsianOil Week 49

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Indonesia’s upstream revamp may fall short
The government is hoping that giving foreign players the option of two contracting models will attract a fresh wave of upstream investment
COMMENTARY
WHAT:
Upstream regulator
SKK Migas has revealed that, in addition to new contract options, the approval process will be streamlined.
WHY:
Oil production has steadily declined in recent years on the back of a slide in foreign investment.
WHAT NEXT:
A return to a system that had already lost investor interest will do little
to stem the decline in output.
INDONESIA has begun courting foreign upstream investors following the govern- ment’s announcement last week that it was considering the creation of a two-contract licensing model.
On December 2, Energy Minister Arifin Tas- rif said the government was reviewing whether to allow contractors to opt between cost recov- ery or gross-split production-sharing contracts (PSC), depending on which suited their devel- opment needs the most. The energy ministry’s acting director general for oil and gas, Djoko Siswanto, said companies would be given this choice as long as their proposed costs were “fair” and showed a commitment to increasing production.
Just days later the vice-chairman of upstream regulator SKK Migas, Fatar Yani Abdurrahman, said the flexibility of the new contracting system would attract investors from the Middle East.
His comments come as the government strives to turn around a slide in produc- tion that is driven by a decline in upstream spending by foreign investors concerned by the country’s notoriously high levels of bureaucracy as well as an increasingly nationalistic approach to the country’s resources in recent years.
More flexible and simpler
Abdurrahman, in an interview with Arab News on December 6, said the UAE’s Mubadala Petro- leum had expressed its “love” for both contract models.
“They [Mubadala] are very proud of invest- ing in Indonesia, they say they are going to grow here and put more money to explore,” he said, before adding that Abu Dhabi National Oil Co. (ADNOC) also intended to invest.
The government introduced the gross split system in 2017, which removed the cost recov- ery mechanism from PSCs. The pre-2017 model allowed companies to recoup their explora- tion costs before splitting production with the government.
Jakarta is not stopping at offering a choice of contracts, however, with Abdurrahman saying the government was also looking to simplify the upstream approvals process. Indonesia’s notorious bureaucracy has long been cited as a deterrent to foreign investors and the official said the government hoped to change this by mak- ing SKK Migas responsible for all exploration approval applications.
“We want all oil and gas companies to come and see us, they will apply for permits and we can manage this. SKK will be the leader proposing
2,000 1,800 1,600 1,400 1,200 1,000
800 600 400 200
0
2012 2013
2014 2015 2016 2017 2018
Indonesia's oil deficit
™
Production Consumption
Data: BP
Week 49 11•December•2019 w w w . N E W S B A S E . c o m P7
,000 bpd