House, Govt agree to allocate $12b for cost recovery

The House of Representative?s budgetary committee and the government have agreed to allocate US$12.01 billion in the 2009 state budget for cost recovery spending in oil and gas exploration and production activities, up from the proposed $10.5 billion.

However, net oil production target would be set at 960,000 barrels per day, a slight fall from the proposed 977,000 despite an increase in the cost recovery spending.

Under the existing production sharing contracts, the government reimburses oil and gas companies? spending for exploration and production activities.

Harry Azhar Azis, the coordinator for the 2009 state budget deliberation, said Tuesday that the committee and the government had also agreed on the need to set up a clear-cut regulation to ensure that oil and gas companies will not be able to mark up their cost recovery claims.

?Such a regulation should be issued before the end of this year so that it could be implemented at the beginning of 2009,? he said, adding that the draft state budget would be later proposed for a final approval in a plenary session.

Harry also said that the commission and the government had also agreed to terminate the gas for oil swap between Chevron and ConocoPhillips to a gas sales purchase agreement (GSPA) contract beginning next year.

At present, Chevron uses about 50,000 bpd of its oil production as exchange of natural gas it receives from Conoco. The termination of the swap deal will raise the state revenues from Chevron to $181 million from $70.2 million, Harry said. (*)