Oil production split should be improved to encourage new oil investment
Saturday, September 30 2000 - 04:00 AM WIB
The government has no choice but to offer new incentives if it wants to attract new investment in the oil sector, according to Sugiharto, a director of local oil company Medco. "Without offering new incentives, don't expect new investors will come to Indonesia. Event the existing ones could go and leave the country," he added.
According to him, the current investment climate in the upstream oil sector is no longer attractive. Several oil investors have sold their oil and gas concessions in the country because they feel the existing production sharing arrangement offered by the government through Pertamina is no longer attractive.
Some companies have even sold their oil interest. Beyond Petroleum (BP), a company resulting from the merger of BP Amoco and Arco - had, for example, sold its oil and gas interests because with the existing incentives they are not economically viable.
He said that at present BP is concentrating on the development of large-scale oil and gas fields such as the Tangguh gas project in Irian Jaya because the development of medium and small-scale gas and oil projects offer them too small financial gains.
According to Sugiharto, the government should be more accommodative in attracting oil investors such as by amending the production sharing system. He said that the existing production sharing arrangement, which offers a split of 85 and 15 ratio in favor of the government in oil production and 70 and 30 split ratio in gas production has become too rigid.
"There should be a flexibility, the oil field which has limited oil reserves and has high risk should for example be developed under more attractive production split, such as 70 and 30 ratio," he was quoted by Republika as saying.
Sugiharto said Indonesia should learn from Myanmar. This country, according to him, offers a much more flexible production split arrangement depending on the oil reserves and the level of the risk in each oil field.
"In Myanmar, the oil production split might be fixed at 60:40 ratio during the early stage of oil exploration. When the oil company finds more reserves, the ratio is then increased to 70:30," he added. (*)