Indonesia’s oil and gas regulator seeks Gulf investment

Indonesia aims to produce 1 million barrels per day by 2030. (Shutterstock)
Updated 08 December 2019

Indonesia’s oil and gas regulator seeks Gulf investment

  • SKK Migas hopes Saudi Arabia can help the country reach its 2030 goal

JAKARTA: Big changes are expected in Indonesia's upstream oil and gas sector with a new leadership poised to draw more foreign investment. In an exclusive interview with Arab News, the vice chairman of the industry’s regulating body explains what will happen, when, and why one of the investors should be Saudi Aramco.  

What investors are looking for is policy stability, whether they are secure enough or not to invest, Fatar Yani Abdurrahman, the vice chairman of Indonesia’s oil and gas regulator SKK Migas, told Arab News in Jakarta on Friday.

Under cooperation contract schemes, companies can have either cost recovery or gross-split production sharing contracts (PSC). The new cabinet, appointed in late October, offers flexibility.

Abdurrahman told Arab News that when he asked UAE’s Mubadala, which is already present in Indonesia, what they thought about the country’s policies, “they said they love gross-split and that cost recovery is also good.

“They are very proud of investing in Indonesia, they say they are going to grow here and put (in) more money to explore,” he said, adding that ADNOC (Abu Dhabi National Oil Company) also plans to invest in the country.

But investment from the Middle East has yet to be significant and Abdurrahman expressed hope it would come from Saudi Arabia.

How risky is investment in Indonesia?

“A few weeks ago, I went to ADIPEC (Abu Dhabi International Petroleum Exhibition and Conference) in Abu Dhabi. We opened an SKK Migas booth. Many investors came and what they wanted to know was how easy is it to invest and how secure it is, not only in terms of policy security, but also the country's security. And Indonesia is a very low-risk country,” Abdurrahman said.

Indonesia is currently implementing a policy that is adaptive to oil prices. “You will not find this in any other country,” he said.

“If the oil price is suddenly hiking, the government will benefit also, so the split will be adjusted. If the oil price goes down, which is very bad for investment, our government will sacrifice its return for the contractor to sustain their production,” Abdurrahman said.

However, as all kinds of policies in Indonesia are often subject to change, many investors worry about their long-term prospects. According to the SKK Migas deputy chief, these changes cannot act retroactively.

“When they sign a PSC, they will stay until the PSC expires. The government will honor it. Long-term planning depends on what you sign in the document. It will stay until you finish,” he said.

One of the biggest hurdles for investors, not only in the upstream sector, is Indonesia’s notorious red tape. For example, if a company wants to start exploration, it will require more than 150 permits.

“We are aware, and know it cannot stay like this,” Abdurrahman said, adding that the situation would improve soon, as SKK Migas  will launch a one-door service policy by early January.

“We want all oil and gas companies to come and see us, they will apply for permits and we can manage this. SKK will be the leader proposing to other institutions and we will talk to relevant departments what needs to be cut,” he said. The initiative was already accepted by Arifin Tasrif, the country’s new minister for energy and mineral resources.

“It will take some time, because we need to change the culture as well, it’s not easy but we have to do it,” Abdurrahman said. He expects that within a year or two red tape will be cut to 10 permits, and that it will about five years for a company to start production.

To expedite, SKK Migas is also investing in digitalization.

“It will accelerate the whole process, IT technology, artificial intelligence, will help us. This is our dream. We would monitor production, there will be no need to wait until people send us reports. We are now constructing our integrated operations center, we will launch it on Jan. 1.”

By the end of December, the regulator is also going to announce its long-term strategic plan, “to ensure we can achieve 1 million barrels a day by 2030,” said the vice chairman, who prior to his current role worked at ExxonMobil, Shell and Petronas.

“We have identified 12 prospects across the Archipelago. We can go offshore, we can go deep oil. This data is open to oil companies, you can come (to SKK Migas) and take a look free of charge. In other countries you have to pay,” Abdurrahman said.

BP said to be considering sale of Mideast ‘stranded assets’

Updated 08 August 2020

BP said to be considering sale of Mideast ‘stranded assets’

  • Major oil companies typically hold assets for the long term

LONDON: BP is preparing to sell a large chunk of its oil and gas assets even if crude prices bounce back from the COVID-19 crash because it wants to invest more in renewable energy, three sources familiar with BP’s thinking said.

The strategy was discussed at a BP executives meeting in July, the sources said, soon after the oil major lowered its long-term oil price forecast to $55 a barrel, meaning that $17.5 billion worth of its assets are no longer economically viable.

But even if crude prices bounce back to $65-$70 a barrel, BP is unlikely to put those assets back into its exploration plans and would instead use the better market conditions as an opportunity to sell them, the three sources said.

Major oil companies typically hold assets for the long term, even when crude prices plunge, with a view to start bringing more marginal production online when market conditions improve.

However, BP’s new divestment strategy, which has not previously been reported, means there will be no way back for the British energy company once it has offloaded its so-called stranded oil and gas assets.

BP did not respond to requests for comment.

The new strategy also sheds more light on chief executive Bernard Looney’s plan to reduce BP’s oil and gas production by 40 percent, or at least 1 million barrels per day, by 2030 while expanding into renewable energy.

“It is a simple calculation of natural production decline and planned divestment,” said a BP source, explaining how BP became the first big oil company to pledge a large cut in its oil output.

For decades, BP and rivals such as Royal Dutch Shell and Exxon Mobil have promised investors that production would continue to rise. But as climate activists, investors, banks and some governments raise pressure on the industry to reduce emissions to help cool the planet, European oil firms are changing tack and pledging to invest more in renewable energy sources.

US rivals are under less government pressure and have not made similar commitments on renewables.

“As we look at the outlook for BP over the next few years and as we see production declining by 40 percent it is clear we no longer need exploration to fund new growth,” Looney said this week. “We will not enter new countries to explore.”

He said that BP would continue to explore for oil near its existing production infrastructure as those barrels would be low cost — and help boost BP’s cash flow to fund its transition to cleaner energy.

BP also raised its target this week for returns from asset sales to $25 billion between 2020 and 2025, of which about $12 billion has already been lined up.

Parul Chopra, analyst at Rystad Energy, said in addition to Angola, he expected BP to move out of Azerbaijan, Oman, the UAE and Iraq.