Land, Security Fears for Drillers in Indonesia

Regulator SKKMigas finds problems, old and new

By Tito Summa Siahaan/Jakarta Globe
Sunday, March 24, 2013

Regulator SKKMigas has embarked on its annual inspection of oil and gas projects around Indonesia and found both new and old problems that may hamper its attempts at salvaging the archipelago’s once-dominant industry.

On Tuesday, the regulator’s deputy chairman for financial control, Gerhard Marteen Rumesser, met the management of Pertamina EP, a subsidiary of state energy firm Pertamina, in Palembang. He heard concerns including difficulties concluding land acquisitions, security fears and the scarcity of good crude oil.

Land acquisition remains a big problem for Indonesia’s oil and gas industry. SKKMigas estimated that it accounted for as much as 33 percent of hurdles faced by the sector last year.

Legal manager of Pertamina EP Asset-2, Agustinus, said the newly enacted Law on Land Acquisition for Public Interests had actually created a more cumbersome process for oil and gas companies. “I think Pertamina is not the only group experiencing this problem,” he said.

Pertamina EP Asset-2 covers four oil fields in South Sumatra. It planned to drill 18 new wells this year, but only one of them had completed the land acquisition process. Oil output was around 24,000 barrels per day, while gas production amounted to 440 million metric cubic feet per day last year.

Agustinus said the 2012 law stipulated that land acquisition for public interests, including oil and gas projects, could only be negotiated by the government, through the National Land Agency (BPN). It also stated that land acquisitions must be executed through “deliberations.”

However, Gerhard said the new law had some loopholes as it allowed land acquisitions of less than 1 hectare to circumvent the usual lengthy process, and suggested oil contractors keep their land needs to a minimum.

“If they still need more than 1 hectare, then just purchase 1 hectare and rent the remainder with a promise to buy it later,” he suggested.

Pertamina EP Asset-2 must also deal with constant security threats like theft and oil siphoning. A company spokesman said 155 security incidents were reported last year, costing some Rp 2.9 billion ($298,000).

In response, management has installed closed-circuit surveillance cameras and increased routine guard inspections.

Pertamina EP Asset-2 will also ramp up its corporate social responsibility programs in the hopes that they will reduce disturbances, which have declined due to similar, previous initiatives.

Gerhard said security concerns in South Sumatra had been discussed at the highest levels, following fears the instability will spread north, where much bigger oil blocks are located.

“It is important to take a comprehensive approach to these issues, both through social programs and stricter policing,” he said.

At the conclusion of meetings in Palembang, SKKMigas officials will head to Surabaya, East Java and Balikpapan, East Kalimantan.

This article first appeared in the March 21 2013 edition of the Jakarta Globe

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