Oil and Gas Industry

Brief Introduction of Indonesian Industries

Regulatory Framework

The oil & gas sector in Indonesia is governed under the newly enacted law No.22 of 2001 (“law 22”), which has introduced substantial changes in the sector’s regulatory structure, especially to Pertamina (the state-owned oil and gas company) in relation to its role in the industry.

Prior to the passing of law 22.the industry was operated under law No.44 of 1960 and law on Pertamina No.8 of 1971,where upstream and downstream sectors were regulated and controlled by Pertamina sole right to the refining, distribution and marketing of petroleum products in Indonesia. At the time Pertamina also maintained a dual role, ie. as player as well as regulator in the industry.

Investment opportunities and structures

Despite the declining in oil production in the country, the oil and gas sector continues to be the main source of income for the government, with 2004 contribution of above 25% to the government’s income.

Due to the importance of the sector to the country’s economy, the Indonesian government is continually striving to encourage ways to mitigate the risk of becoming a permanent net importer of oil. There are ample potentials to increase the oil and gas reserves. Currently Indonesia has 38 drilled and 22 un-drilled hydrocarbon deposits in Indonesia. Out of the 38 hydrocarbon deposits that have been drilled, reserve only found in 23 of them, out of which only 15 have started productions. The remaining 15 drilled deposits are yet to discover reserves and therefore require further explorations.

With the effort to improve production in the oil and gas sector, Indonesia aims to become the leading investment destination country in the world. A string of policies relating to the restructuring of the sector has been formulated by the government to support this intent. Various contract incentives as well as assurance to investors of a fair and equal treatment on the business, are among the things the government has put forward enhance the attractiveness of the sector to investors.

This endeavor is not unrealistic as Indonesia is situated in an area geologically rich of potential oil and gas reserve. Another competitive edge for Indonesia would be the general inclinations of the world to reduce dependency towards oil supply from the Middle East and hence their need to eye for new potential areas.