Indonesia plans new revenue deals to lure oil and gas companies

[JAKARTA] Indonesia plans more generous production-sharing arrangements for oil and gas companies to spur exploration and lift a flagging economy, the minister overseeing the energy industry said.

Oil companies that promise to spend more on exploration will get 20 per cent of the proceeds after cost recovery, up from 15 per cent currently, said Rizal Ramli, a senior minister coordinating energy and mining. He aims for the change to take effect early next year.

"Our policy with respect to production sharing has been very static," Ramli told a Jakarta Foreign Correspondents Club luncheon on Wednesday. "This is a way to take benefit of the low cost situation in the oil and gas industry." The plan comes after foreign companies have been put off from exploring in Indonesia by the slump in oil prices, increasing resource nationalism, and an uncertain legal and regulatory environment. The country, a net oil importer, reactivated its Opec membership this month in an effort to ensure energy security through crude supply deals.

Oil and gas investment reached US$13.6 billion in the first 10 months of 2015, short of the government's full-year target of US$23.7 billion, according to energy ministry data. Ramli, who also oversees transport, tourism and fisheries, said President Joko Widodo is trying to cut red tape across the economy to attract investors. Before the August reshuffle that saw him join the cabinet, there was no clear policy direction, Ramli said.

"I do believe the momentum is going to continue next year," he said, talking of economic growth. "Of course the impact of deregulation is not going to be short term. The impact will need time, it might be medium term." Indonesia's Opec Governor Widhyawan Prawiraatmadja said in an interview on Tuesday the government will have to get used to lower revenues from oil and gas, with the possibility that oil prices will continue to trend lower.

"Stopping production is risky, but not continuing future projects is probably wise," Prawiraatmadja said. "Life was simple when oil prices were above US$100."

BLOOMBERG