INDONESIA - The E&P Regime.

Jakarta in January 2007 promised to offer tax incentives and review E&P regulations in an effort to attract more foreign investment to develop Indonesia's oil and gas resources. Rising oil prices have seen Indonesia focus on gas production for domestic needs, rather than for export. This has worried overseas customers and discouraged foreign investment in petroleum E&P, amid confusion over how much gas producer had to sell at lower prices for the local market, rather than meet more profitable export demands.

Gas producers with PSCs signed after 2001 must supply at least 25% of their output locally at controlled prices, which is a disincentive for investors. Jakarta in early 2007 was said to be considering raising this limit to 42% under new PSCs with local gas prices being low (see down10IndnsEnrBasMar5-07).

However, Jakarta in early 2007 said it was looking at lowering the VAT and import taxes on drilling equipment and other materials for E&P investors, as well as improving the state-contractor production split ratio from 70:30 to 51:49.

Oil and gas E&P operators in eastern Indonesia are required to return their concession to the government if they failed to develop oil and gas potential in their working area after three years, instead of the previous six-year period. The regulation was issued in late 2006 after a growing number of working areas left idle contributed to a decline in the country's oil production.

R. Priyono, upstream oil and gas development director, in early 2007 said the government will be consistent in implementing the regulation as contractors had been offered sufficient incentives. He said operators in eastern Indonesia were no longer required to do well drilling, but they had to return their concession if they found the area had no profitable reserves. In western Indonesia, where infrastructure is more adequate, drilling is still required in exploration. A number of oil giants like Chevron, ExxonMobil, ConocoPhillips and Anadarko are eyeing oil and gas concessions in eastern Indonesia.

There are two main categories of deals on offer: the standard production sharing contract (PSC) for E&P blocks, usually for 30 years renewable for another 20-30 years, and the Technical Assistance Contract (TAC) for EOR operations involving old marginal fields. Over 350 PSCs and TACs have been signed since the 1940s (see gmt9IndnsGeoFeb28-05).

Jakarta on Jan. 16, 2007, signed 16 new PSCs for oil and gas exploration valued at $201.04m, of which $25.45m were paid as signature bonus, while the remaining funds will be spent on geological surveys, development of exploration wells and other exploration-related activities over the next three years. The winners included the ConocoPhillips (Kuma)-Statoil Indonesia consortium, which will develop the Kuma Block between Kalimantan and Sulawesi islands. Others included PearlOil (a unit of Abu Dhabi's Aabar Petroleum Investments Co.) which got Karana Block in Makassar Strait; Transword Exploration got Duyung Block in Natuna Sea; Gregory Gas Perkasa-CNOOC (China Nat'l Offshore Oil Corp) Batanghari got Batanghari Block in Sumatra.

TGS-NOPEC Geophysical of Norway in early 2007 began acquiring non-exclusive geo-scientific surveys in 16 of Indonesia's under-explored frontier basins: off the west coast of Northern and Southern Sumatra, off West Java, west of East Timor, off southern and eastern Sulawesi, and in three areas adjacent to Papua. Acquisition will take 18 months, but the first data are to be available in the first quarter. The area to be surveyed totals 1 mm sq km.

The project includes 33,000 line-km of 2D seismic data, 419,000 sq km of Multibeam SeaSeep, gravity, and magnetic data, 1,500 sediment cores, 4,500 geochemical analyses, and 250 heat flow probes. TGS-NOPEC will manage the operations, while a team of geoscientists with extensive knowledge of Indonesian basins and a proven exploration success record in the region will interpret the data.