Interview: Evita Legowo

How does the ministry stimulate investment, especially in more remote areas of the country?

EVITA LEGOWO: Investors searching for new opportunities in the oil and gas industry not only look at the hydrocarbons potential of the country, but also aspects such as regulatory stability and investment environment. The eastern part of Indonesia has been noted as a region with high potential reserves, but gaining access to these reserves entails high costs, high technology and high risk. For these reasons we are working on new initiatives to lessen the challenges and create a more attractive investment climate. Measures being taken include better splits in production-sharing contracts (PSCs) when the field has unfavourable conditions, and shortening the process of obtaining a licence in our country.

We have a very close relationship with the ministries of energy, finance, environment and forestry, which emphasises the importance of the oil and gas industry as one of the main contributors to government revenue. With current oil prices, and an investment goal of $15bn in 2011, we believe we should be able to maintain production of 1m barrels per day. Furthermore, in 2011 we signed agreements for 40 new conventional and unconventional blocks, and we are targeting the same number for 2012.

When it comes to the regulatory environment, some contractors have raised concerns about the cost recovery mechanism in PSCs. We are currently in the process of preparing more detailed regulations, which will clarify the Government Regulation 79/2010. Investors should understand that our goal is to make operations more straightforward for them. At the same time, our role is to not only to defend their interests, but also those of our nation.

What needs to been done to address concerns related to contract extension?

LEGOWO: Within the last few years the process of extending contracts has generally been a tedious one.

In order to ease the process and address the concerns of some of our current contractors, we are working together with individual contractors to analyse the investments required to develop each field that is nearing its expiry date.

Our decisions are based on the size of the field, the required technology and the investment necessary to continue operations. For example, we would like Pertamina, the state-owned oil extraction and refinery company, to have a bigger role in the industry and maintain a number of these fields. However, its participation in new fields is greatly narrowed by its limited investment capacity.

How will increased levels of gas utilisation within the energy mix be achieved?

LEGOWO: Liquefied natural gas (LNG) is mostly produced in Kalimantan and Papua, but the bulk of consumption takes place in Java and Sumatra. As a result, the government plans to build three LNG storage terminals that are expected to be operational soon.

The one in Jakarta is expected to start operating in the first quarter of 2012, followed by the Aceh and Belawan terminals, which are scheduled to be operational during the second half of the year. The government also has plans for another LNG terminal in Semarang, Central Java, which is expected to start operations in 2013. Indonesia has huge potential reserves of natural gas from coal, also known as coalbed methane (CBM). We are hoping to reach a total production of CBM equivalent to 500m cu feet per day by 2020, and our intention is to take advantage of this new source of energy.

There are two options available; if the infrastructure required to sell the gas to the buyers is insufficient, CBM producers can choose to use the gas to generate and sell electricity directly to Perusahaan Listrik Negara (the state-owned electricity distributor), but if infrastructure is sufficient, they can choose to sell the CBM through a gas sales contract.