0 More Incentives for Oil, Gas Planned, Jero Says

In an effort to attract more investment and expand exploration activities in the oil and gas industry, the government is planning on providing more lucrative incentives, a minister said on Monday. Acknowledging Indonesia’s inability to meet the growing domestic demand for energy, Energy and Mineral Resources Minister Jero Wacik stated that inducement is key for luring investors. “More exploration is needed, and this can be done by providing more attractive incentives. We still have plenty of reserves according to seismic data,” said Jero during his keynote speech at the annual Indogas conference and exhibition in Jakarta. 

“What we currently produce is the result of explorations [from] 10 years ago,” according to the minister. Companies typically spend up to $100 million to drill a prospective offshore reserve and $20 million for an onshore site, he said. The investment realization for oil and gas exploration activities last year was $160 million, of a projected $2 billion. “Firms frequently complain about taxation during exploration, notwithstanding the risk of finding a dry well,” Jero added. 

Edi Hermantoro, the interim director general for oil and gas at the ministry, claimed that the government has already provided incentives for exploration activities, though its implementation has been hampered due to a lack of supporting information relayed by the finance minister. Edi added that the firms performing exploration activities are exempt from the obligation to pay property taxes and import duty for materials needed. 

Still, such incentives cannot be implemented, as the Finance Ministry has yet to formulate the technical details on which components will be freed from tax obligation and which are not, according to Edi. “We have requested the Finance Ministry to formulate implementation instructions so [the incentives] can be executed,” he said. Edi also remarked that the government is willing to be more flexible in terms of its production share with firms committed to exploration activities which were adjusted with the return of investment. 

“There are several [natural gas] projects [in eastern Indonesia] in which the production sharing contract is split 65 percent and 35 percent,” he said. Typically, the government gets a 70 percent cut of a gas contract and 85 percent for an oil deal. Edi added that the government will use its own money to provide more reliable seismic data on the whereabouts of Indonesia’s oil and gas reservoirs.

source : the jakarta globe