INDONESIA - Part 2 - The Oil & Gas Fields.

Indonesia's crude oil production capacity has declined steadily in recent years to reach 950,000 b/d, while the country's oil demand has risen to 1.2m b/d. The country's production of condensate and NGL is less than 130,000 b/d, down from 200,000 b/d in early 2001. The government in early 2003 had planned for crude oil production in that year to average 1.27m b/d, compared to 1.21m b/d in 2002, 1.5m b/d in early 2001 and 1.6m b/d in 1997. But Indonesia's OPEC quota, excluding condensate/NGL, is 1.399m b/d, far above its capacity.

Indonesia in 2004 produced an average of 1.098m b/d of crude oil and condensate/NGL. The country's average production of crude oil last year was 968,200 b/d and condensate was 129,800 b/d. In its 2005 budget, the government estimates crude oil and condensate/NGL production this year to rise to an average of 1.13m b/d, with crude oil to average 950,000 b/d. Some industry sources have expressed doubts that Indonesia would meet this target because of old fields and a lack of fresh investment in the sector.

With oil reserves depleting, Indonesia still does not give foreign investors E&P terms as attractive as the ones being offered by fellow ASEAN countries. It needs at least $3.5 bn in annual investment to find and prove 4 bn barrels of additional reserves and keep oil production above 1m b/d until 2020.

Indonesia has 60 sedimentary basins. Of these 36 are in the west of the country and have been explored, with 14 producing oil and gas at present. Proven oil reserves at end-2004 were estimated at 4.2 bn barrels, down from 4.4 bn barrels at end-2003, 5.2 bn barrels at end-1993 and 10.1 bn barrels at end-1983. Sumatra alone accounts for 65-70% of the proven reserves and 55-60% of oil output (see geological profile & exploration in Gas Market Trends of this week).

Many oilfields would stop production in the coming years. Caltex, the biggest oil producer in Indonesia, expects its output to fall to about 530,000 b/d this year, down from 550,000 b/d in 2003, 600,000 b/d in 2002, 660,000 b/d in 2001 and 785,000 b/d in 1997. Foreign and private companies account for 86% of Indonesia's oil output, with state-owned NOC Pertamina producing the rest (see profiles of the fields & operators below & in Gas Market Trends of this week).

It has been said since late 2002 that oil production could be increased by about 200,000-300,000 b/d within a few years if foreign and local companies activated as well as further developed about 60 marginal fields and if current operators stopped a decline in existing capacities. Mines and Energy Minister Purnomo Yusgiantoro said in October 2002: "We understand to develop those marginal fields is not easy, especially in cost. We will give them incentives but case-by-case. We want oil companies to propose something to the government on how to develop these fields". Rachmat Sudibyo, head of the state E&P regulator BPMigas, said in late 2002 the government was considering reducing the share it takes of oil and gas revenue to encourage development of marginal fields. Nothing has changed since then - not even after Susilo Bambang Yudhoyono took over last October at the country's first directly elected president, although he and his deputy Jusuf Kalla have recently promised that the E&P and downstream incentives will be improved to encourage foreign direct investment (FDI) in the petroleum sector. The downstream sector is yet to be deregulated and fuel subsidies are yet to be lifted (see DT).

Indonesia's standard production sharing contract (PSC) split is 85% for the government and 15% for the contractor. In late 2004 the Constitutional Court upheld the 2001 Oil & Gas Law. But it struck down as unconstitutional three articles saying local fuel prices will be set by the market, oil or gas producers must commit up to 25% of their output locally with no minimum set, and the Mines and Energy Ministry can delegate marketing authority to the producers.