Indonesia Improves Oil and Gas Fiscal Terms to Boost Production

MINISTRY OF ENERGY AND MINERAL RESOURCES

REPUBLIC OF INDONESIA

PRESS RELEASE

NUMBER: 421.Pers/04/SJI/2021

Date: 30 November 2021

Indonesia Improves Oil and Gas Fiscal Terms to Boost Production

The Ministry of Energy and Mineral Resources (EMR) and the Ministry of Finance (MOF) are coordinating improvements in upstream oil and gas fiscal terms. The action is taken to reform regulations on upstream oil and gas contracts so as to increase production.

The Minister of Finance, Sri Mulyani, said that Indonesia was targeting 3.5%-4% growth in economy in 2021 and 2022. This goal can be realized by increasing the production of the upstream oil and gas industry because the majority of industries in Indonesia are still based on oil and gas, Sri stated on the second day of the 2nd International Convention on Indonesian Upstream Oil and Gas 2021 (IOG 2021) held in Bali on Tuesday (30/11).

To boost investment so as to increase oil and gas production, joint efforts from all parties are needed, in the forms of fiscal and incentive improvements; contract certainty, efficiency, and technology; and good governance and transparency.

The design of the upstream oil and gas industry must also be in line with Indonesia's road map to net zero emissions in 2060. "The MOF, the Ministry of EMR, SKK Migas, and the industry must work together to develop appropriate policies, to continue to develop energy security that supports economic improvement," said Sri Mulyani.

In a similar vein, Director of Upstream Oil and Gas Business Fostering of the Ministry of EMR, Mustafid Gunawan, said Indonesia's oil and gas industry were facing the challenges of attracting investment and boosting exploration. The government is making efforts to provide facilities such as data access, tender access, and better terms and conditions.

"Yesterday, we opened a tender for oil and gas work areas with better terms and conditions, such as a more attractive split, 10% shareable First Tranche Petroleum (FTP), DMO price at 100% of ICP during the contract, and new terms for relinquishment (no mandatory relinquishment in the third year of contract). We also hope that easy access to data can attract investors to invest in Indonesia," Mustafid commented.

According to Mustafid, the Minister of EMR determined a team to be in charge of work area tender, from preparing or selecting work areas to be tendered out, evaluating the areas, and preparing the terms and conditions, to conducting tender. The team is also responsible for evaluating bids.

The team consists of representatives from the Ministry of EMR, SKK Migas, and university experts. Data for work area preparation can come from anywhere, for example from proposals made by a trilateral team formed by the Ministry of EMR, who actively organizes FGDs on oil and gas potential, from recycled areas, or work areas that are relinquished, or from the results of general surveys conducted by speculative survey companies.

Every work area on offer, before it is determined by the Minister of EMR, is consulted with the provincial governments where the area is located and coordinated with the relevant agencies. This is meant as an initial dissemination of the project and as mitigation of the work area, in terms of spatial planning and use. Potential investors must understand spatial planning and use because in oil and gas operations, subsurface and surface risks are often unavoidable.

There are two models of oil and gas work area bid in Indonesia, namely direct offer tender mechanism and regular tender mechanism. The direct offer tender mechanism gives companies the opportunity to choose and conduct studies in open areas. The nominated work area must be put out to tender, though. To appreciate the company who has the initiative to nominate the work area, the company gets a privilege of right to match.

"Based on data, the direct offer tender has a success rate of more than 70 percent, which is better than the success rate of the regular tender which is around 50 percent," said Mustafid.

Through Regulation of Minister of EMR Number 7 of 2019 on Management and Utilization of Oil and Gas Data, the government hopes that more entities will access data from the Migas Data Repository (MDR). Thus, companies can evaluate data and then submit direct bids, or even propose a work area to the government to be included in a work area bid.

For the record, IOG 2021 is an international convention organized by SKK Migas to realize the joint vision of 1 million barrels of oil per day and 12 billion cubic feet of gas per day by 2030. Energy transition is a topic that interests numerous participants during the convention. (IY)

Head of Bureau of Communication, Public Information Services, and Cooperation

Agung Pribadi (08112213555)

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