Room for Investment

What is the reason for the lack of interest in exploration from the private sector?

For exploration, the current oil price is lower than 2014, which is the main reason why exploration continues to be slow; many blocks are operated by companies that do not have the funds. The three requirements of companies operating upstream are that they must have the funds, the technology appropriate for oil and gas, and need to be prepared to calculate the risk. If a company has the funds, it is able to pay for the calculation assessment or technology; if not, there is no drilling or exploration. There are several other causes that make exploration slower, such as regulation related to permits and land acquisitions that create certain issues.

What have been your experiences in having the new oil blocks on offer in the market?

When new blocks are prepared under the chamber of Migas, it does the offering based on competitive valuations. A block will then be assigned to a new investor, and after one is appointed for a certain block, a production contract will be prepared. The new operator will sign an agreement and the chairman of SKK Migas will countersign, after which it will be approved by the Minister of Energy. After this is signed, SKK Migas will start to supervise the operation of the block. When we prepare new guidelines for procurement or related to safety or procedures, before issuing, we discuss this with the operators. Several times these are improved together when drafting; for example, the Centralized and Integrated Vendor Database, which we created together with operators, allows all vendor information to be shared online with operators and allows SKK Migas to check vendors. This allows us to identify problematic vendors as they will result in higher costs, which means an increase in operation costs.

Should there be more foreign firm participation in the sector?

Indonesia needs more investment, which can come from local or multinational companies as well as state-owned companies. What we want for upstream oil and gas is more investment, which is why SKK Migas would be happy if more large companies invest in upstream oil and gas. If the operations are more efficient, then the cost will be less and profits will be bigger. Based on the production contract, the profits will be divided between SKK Migas and the operator, which is why we want to work together, faster, and more efficiently. We want the share of the cake to be larger for everyone involved.

How do you plan to incentivize the increase in oil and gas reserves?

Our KPIs consist of several things: increasing reserves, increasing production and lifting, and minimizing costs. Our results will then increase government revenue from oil and gas. After discovery, there are two possibilities: develop or not to develop based on economic factors such as production costs. Therefore, to increase reserves we have to push exploration by making regulations easier and helping companies when they face difficulties. At times, after seismic studies, companies want to drill but the permits take time so we will help them. We seek larger reserves, which we expect to find in the east.

What is your core message to the large firms looking to invest in these projects?

The ministry seeks to make its operations more efficient, which will result in more profits to be divided. To make them more efficient, we need to find lower costs and quicker processes. The ministry has a policy that a new PSC should be a cross split production-sharing contract. The previous one was the cost recovery production-sharing contract, and the new objective is how to make operations quicker. If there is a policy that offers opportunity for the private sector to invest in oil and gas quickly without too many approvals for procurement, then this efficiency will hopefully make them more interested in investing in upstream oil and gas.