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Jokowi must act to reform Indonesian upstream sector

Oilfield Technology,

Jokowi’s government should act now to reform Indonesia’s upstream oil and gas sector, according to an analyst from GlobalData.

The election of Joko Widodo, popularly known as “Jokowi”, as Indonesia’s new president presents the ideal opportunity for the country to implement the reforms necessary to revitalise its upstream oil and gas sector, by attracting foreign capital and expertise, according to an analyst with GlobalData.

Jonathan Libre, GlobalData’s Upstream Analyst covering the Asia-Pacific Region, says that while the newly-elected administration has issued proposals to increase infrastructure investment, streamline the regulatory process, and offer more flexible fiscal terms under a new production sharing contract, more efforts are needed to increase the total estimated post-2014 capex expenditures of US$ 5.8 billion, as projected by GlobalData.

Libre explains: “Indonesia needs to make substantive legislative reforms, including an upheaval of the 2001 Oil and Gas Law and a reduction in the ambiguity of contracts regarding cost recovery and domestic sales obligations.

“Jokowi’s government should act now to address recent project delays, corruption scandals and the continual decline in national crude oil production, which prompted the country’s exit from the Organization of Petroleum Exporting Countries in 2009.”

The analyst states that Indonesia’s 2014 production target of 818,000 barrels per day (bpd), outlined by the Revised State Budget, is on course to be missed by a clear margin.

Libre continues: “Recent years have seen a number of disappointing licensing rounds, and a lack of exploration activity has left many areas underexplored, particularly in Eastern Indonesia.

“Even though Banyu-Urip, Indonesia’s largest discovery for a decade, is expected to contribute 165,000 bpd in 2015, the national production target of 1 million bpd in the medium to long term seems increasingly unrealistic.”

Libre concludes that liberalisation of the oil industry will face staunch political opposition, but it is vital that Indonesia builds a more favorable and stable investment climate to secure the long-term success of its energy sector.

Adapted from press release by Katie Woodward

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