Indonesian Oil, Gas Exploration May Halt Over Land-Tax Issue

Work at 19 Indonesia exploration wells may halt after the finance ministry shifted the cost of land and building taxes for oil and natural gas projects.

The companies that operate the wells have temporarily halted orders for drilling rigs because they are required to pay the tax before starting exploration, according to Aussie Gautama, planning deputy at SKK Migas, the country’s upstream oil and gas regulator. The suspension may hamper effort to find potential resources of 1.6 billion barrels of oil and 3.7 trillion cubic feet of gas reserves, Gautama said.

“They may cancel bringing in the rigs if the tax issue isn’t cleared soon,” Gautama said yesterday in a text message. “It takes about two years to order rigs, so it means exploration to replace our reserve could be delayed for two years if the rigs were canceled.”

Indonesia is trying to attract upstream investment to stem a decline in aging oil and gas fields. The decline in output turned what was once Southeast Asia’s largest crude producer into a net oil importer and caused it to withdraw in 2008 from the Organization of Petroleum Exporting Countries.

The finance ministry issued a regulation last year that shifted the responsibility for paying land and building taxes to the exploration companies as of Jan. 1, said Chandra Budi, spokesman at the Directorate General of Taxation at the Finance Ministry. The government had previously covered the tax.

“It looks like it is a new regulation, but it’s not,” Budi said today in a telephone interview. “Contractors can import the rigs and do explorations even if they haven’t paid the tax. We will just collect the tax and fine them if they miss the payment.”

Output Target

The country aims to produce 840,000 barrels of oil a day tin 2013. Indonesia has proven oil reserve of 3.7 billion barrels and 104 trillion cubic feet of natural gas, according to data from SKK Migas.

State-owned oil company PT Pertamina, Inpex Corp. (1605) and Niko Resources (NKO) are among companies that are operating the exploration wells, Gautama said.

Indonesia’s current oil reserves will only be enough for 10 to 11 years of production, Elan Biantoro, a spokesman at SKK Migas said yesterday by phone.

“We have potential oil resources of 50 billion barrels, but they need to be proved with aggressive explorations,” Biantoro said.

To contact the reporter on this story: Fitri Wulandari in Jakarta at fwulandari@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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