Govt to increase oil share to contractors: Minister

Indonesia, desperate to replenish dwindling oil reserves and encourage exploration, said on Tuesday it would give contractors a greater share of the oil they pump out of the ground.

It is the first time in six years that Asia's only OPEC member has offered to change its production sharing formula -- the standard contract currently gives 85 percent of the output to the government and 15 percent to the contractors.

``I have ordered (state oil and gas firm) Pertamina to give incentives to oil contractors by reducing the government share,'' Mines and Energy Minister Purnomo Yusgiantoro told reporters.

``We have to encourage exploration and it only can be done if we give an acceptable rate of return to investors. That means reducing (the government's) portion and giving more,'' Purnomo said.

The changes will be made on a case-by-case basis and Purnomo gave no specific details of how much more would be offered to oil companies.

``This is political decision by mines and energy minister and Pertamina has to negotiate flexibly,'' he said.

Indonesia, the world's fourth most populous nation, is the only Asian member of the Organisation of the Petroleum Exporting Countries (OPEC) but can barely meet its production quota of about 1.36 million barrels per day (bpd).

Without significant new discoveries the country will eventually become a net oil importer.

Purnomo said Indonesia could substantially boost output, putting proven and potential reserves of oil at a total of some nine billion barrels.

But much of those reserves are in distant parts of the giant archipelago and difficult to reach. The government has acknowledged that it will have to offer more attractive terms if it is to lure oil companies into frontier areas.

Until now, however, it had offered no new incentives on production sharing. The system was last changed in 1994.

``There are potential oil reserves in Indonesia. We also have marginal oil fields, which can increase production. However, that depends on incentives we give to the contractors,'' Purnomo said.

An official at state oil company Pertamina said there were about 40 marginal fields around Indonesia that can be developed with production estimated of 320,000 bpd.

``We've known that there is potential production from marginal fields since 1996. But the fields could not be developed because it wasn't efficient. With high oil prices and incentives from the government, I think we can develop the fields,'' the official said.

He said Indonesia produced about 1.297 million bpd of crude oil and 142,000 bpd of condensate in September. He expected that the oil production would rise to 1.34 million over the rest of the year.

Output by the biggest oil contractor, Caltex, last month was just 690,000 bpd, compared to a target of 740,000, because of public unrest around its fields in central Sumatra.

``There are security problems at Caltex...many unreasonable protests from local people have hampered production at some oilfields,'' the official said.

Caltex is jointly owned by Chevron Corp and Texaco Inc.

Other foreign oil companies working in Indonesia under Pertamina's umbrella include Unocal Corp and ARCO. The contractors are obliged to work in cooperation with Pertamina. (*)