House may force govt to stop dawdling on oil lease extensions

Amahl S. Azwar, The Jakarta Post, Jakarta | Headlines | Thu, October 17 2013, 9:47 AM

The House of Representatives is considering imposing a deadline on decisions to renew oil and gas contracts, as it continues to revise the 2001 Oil and Gas Law.

The law currently doesn’t set a time limit for the government to respond to oil and gas company requests to extend concessions.

Governmental indecisiveness on renewing contracts only compounds legal doubts in the upstream sector, Satya W. Yudha, a member of the House’s Commission VII overseeing energy affairs, said on Wednesday.

“Thus, it is important for us to have specific deadlines that force the government to decide on expiring contracts,” said the Golkar Party lawmaker.

“We are considering a scheme that will require the government to answer a [contractor’s] request to renew its oil and gas contract within six to 12 months.”

According to Satya, there were 29 concessions set to expire between 2013 and 2021, and it remained unclear what the government expected from policy makers.

The most anticipated decision is whether or not the government will extend the current concession in East Kalimantan’s Mahakam block, which is operated by French oil and gas contractor Total E&P Indonesie, after it expires in 2017.

In the latest twist, Total spokesman for Indonesia Kristanto Hartadi said last week that the firm would likely withdraw a plan to invest around Rp 73 trillion (US$6.6 billion) through 2017 to maintain production in the block, due to uncertainty over whether the government would renew the contract.

In response to Total’s concerns over its expiring contract, Energy and Mineral Resources Deputy Minister Susilo Siswoutomo earlier said the government would not rush its decision regarding the Mahakam product sharing contract (PSC).

“The PSC is not expiring anytime soon. Relax,” he told The Jakarta Post via a text message.

The government also has yet to decide who will operate the 2,480-square kilometer Siak oil block in Riau, although US oil and gas giant Chevron Pacific Indonesia’s contract to operate the block will expire on Nov. 27 this year.

Oil and gas contractors usually apply for an extension around five to seven years ahead of their contract’s expiration date.

In chorus with Satya, Daryatmo Mardiyanto, an Indonesian Democratic Party of Struggle (PDI-P) lawmaker on House Commission VII, said the country needed to have a clear mechanism governing oil and gas contract renewal to avoid conflict of interest.

“The 2001 Oil and Gas Law does not provide clear stipulations on renewing expiring concession contracts,” he said.

Legal uncertainty has remained the major ghost that spooks oil and gas investors in Indonesia, a former member of the Organization of the Petroleum Exporting Countries (OPEC).

In May 2011, the government made a last minute decision on whether to give South Korea’s Kodeco an extension or force it to hand over the contract for the West Madura offshore oil and gas block in East Java to state-owned oil and gas firm PT Pertamina.

In the lead-up to the decision, production at the East Java block dropped significantly, as the uncertainty made Kodeco hesitant to expand or invest further.

In 2006, the central government finally picked ExxonMobil over Pertamina to operate the oil-rich Cepu block, which lies in Central and East Java, after almost two years of delay.

Indonesia left OPEC in 2008 after becoming a net oil importer, due to aging oil fields coupled with soaring fuel consumption.

That year, Indonesia produced 975,000 barrels per day (bpd) of oil on average, much lower than the 1.6 million bpd it produced in 1995, according to data compiled by the Indonesian Chamber of Commerce and Industry (Kadin).

As of September this year, Southeast Asia’s biggest economy produced 829,000 bpd of oil, falling short of the target of 840,000 bpd stipulated in the 2013 Revised State Budget.


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