The oil and gas industry, especially the upstream sector, is in a difficult situation. The slump in oil prices has disrupted investment activities because the cost becomes no longer economical. This is especially more so in Indonesia where the cost of oil production is still expensive.
On the other hand, oil and gas investment climate in Indonesia is less attractive than the neighboring countries. There are many issues hampering the country’s oil and gas industry, such as complicated and time-consuming licensing, legal uncertainty, and interagency overlapping regulations.
As a result, oil and gas production continues to decline. Similarly, exploration activities are greatly reduced which leads to the slow discovery of new reserves.
Facing these conditions, the Indonesian Petroleum Association (IPA) held its annual event, the 40th IPA Convex 2016 on the theme “Shifting Paradigms in Indonesia- Supplying Energy in the New Reality in Jakarta on 25-27 May.
"We wanted to explore new investment models to keep pace with current development in the upstream oil and gas industry," said IPA President Christina Verchere to Katadata reporter, Maria Yuniar, in a special telephone interview a day before the event on Tuesday (24/5). The BP’s Regional President of Asia Pacific also expected improved government’s role in increasing investments in the upstream oil and gas sector. The following is an excerpt of the interview.
What underlies the selection of the theme for the 40th IPA Convex this year?
We selected the theme after observing current development in the upstream oil and gas industry amid weakening global oil prices. First, the environment from the investors’ perspective in oil and gas industry globally. We wanted to explore new investment models to keep pace with current development in the upstream oil and gas industry. Second is shifting paradigms in the country, the growth that Indonesia is looking to achieve.
What should be prepared by the government?
Given the scale of the country, (Indonesia) needs to be underpinned by energy supply. The government is interested in investing in oil and gas. This is especially so since the eastern part (of Indonesia) has more gas than oil.
How is investment condition in the oil and gas sector today?
It’s high production cost. In low oil prices, we recontract and renegotiate with the suppliers. We expect to see some of the operating costs as well the development costs come down. What’s really a concern is an investment is going to be less because of the price.
Will the current development cause the production cost of oil and gas companies to swell?
There are other aspects that can drive high production cost such as the more technically challenging environment. For example in the deepwater which is located in remote location. Those things can drive your production costs.
What the oil and gas industry expects from the government’s policies?
In the oil and gas industry, what really matters are the resources and oil and gas potential. It must be competitive. Also, attractive government regulations. Tax is so hard. It’s the dynamic that the ministry of finance all around the world should be able to manage. Maximizing the state revenue on one hand and attracting investment on the other hand.
Talking about the competitive value, does the oil and gas industry needs incentives from the government?
I think it’s the key. Yes, we need it. There are already incentives in the industry that we look at.
Have you heard about One Stop Services (OSS) recently launched by the BKPM?
Yes, I have heard about it.
Is it effective for the oil and gas industry?
I would say that there is more work to be done. We need help in the permitting process especially with the Ministry of Forestry and Environment around the land aspect. We need help with the local government around that too. I think the idea is great. I think we just need to see more effect to oil and gas industry.
How do you assess the government's plan to revise the production sharing contracts to make oil and gas investments more attractive?
If you have discovered gas, discovered oil, you have to accelerate their production, as well as discover the new one. In addition, the government is expected to find solutions to exploration problems. What we do now to solve the same is to develop what we have discovered already.