Amahl S. Azwar, Jakarta – In response to dwindling oil production, President Susilo Bambang Yudhoyono on Wednesday tried to convince giant oil firms that the government was on their side by offering better incentive packages.
Speaking before top oil and gas executives at the opening ceremony of the 37th Indonesian Petroleum Association (IPA) convention, the President said his administration would facilitate industry players in a bid to boost production and exploration activities.
The three-day convention is the first big annual meeting of around 52 oil and gas firms in the country since the removal of upstream regulator BPMigas in November last year.
"[Support of the oil and gas industry players] is in line with Inpres [President Instruction] No. 2/2012 on increasing the nation's average daily oil output [by 2014]," he said.
Under Inpres No. 2/2012, the government set the target to achieve a daily crude oil output of 1.01 million barrel per day (bpd) in 2012.
In the first three months of the year, average oil production, which reached a peak output of 1.6 million barrels per day (bpd) in 1995, was a mere 830,900 bpd. The output performance in the first quarter of this year was 7 percent lower than the target of 900,000 bpd set in the 2013 State Budget.
Indonesia's future oil production is at risk as most of the funding will be spent on maintaining current projects rather than exploration to unearth new resources.
Out of the US$26.2 billion investment expected this year, only around 10 percent or $2.7 billion will come from 200 contractors for exploration and the drilling of 75 oil and gas exploration wells.
Yudhoyono, a former mining and energy minister, said the government had considered providing better incentives particularly to those oil and gas contractors exploring the archipelago to find profit-making hydrocarbon reserves.
"I have asked the Energy and Mineral Resources Minister [Jero Wacik] and the [interim upstream watchdog] SKKMigas to discuss the incentives with the Finance Ministry," he said without elaborating further.
Based on the new Finance Ministry's regulation PMK 70/2013, oil and gas contractors that actively explore new sites and contractors at the exploitation stage would be exempt from import duties, value-added tax (PPN) and luxury-goods sales tax as of April this year.
Speaking at the same event, Jero said petroleum companies operating in the country had been demanding more incentives during the exploration stage. He said he hoped the President would respond the request "as soon as possible."
"Even though Bapak [the President] will lead the nation for another one-and-a-half year, I am sure that if you are able to take as many important steps as possible, it will benefit the future leaders of the nation," he said.
IPA chairman Lukman Mahfoedz, also the president director of the publicly-listed PT Medco Energy Internasional (MEDC), said after hitting peak production in 1995, oil output has been declining at a 3.5 percent annual rate.
"This is due to the lowering activity in the upstream industry. The government must ensure that the law, regulations and fiscal policy will give more benefits to the investors, particularly those keen to explore the frontier areas in the archipelago," he said.
This year, the association estimates oil and gas investment to reach $23 billion – lower than investment in 2012 of $35 billion.
On the sidelines of the conference's opening ceremony, the President also witnessed the signing of 13 upstream oil and gas exploration contracts worth $8.7 million, seven gas sales agreements worth $571.4 million in state revenue and one shale gas contract signed by state-owned oil and gas firm PT Pertamina worth $28.4 million.