UPDATE 2-Indonesia tells oil majors to follow bank rules or stop exports

Fri Feb 22, 2013 2:52pm GMT

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* Firms required to channel export revenues via local banks

* Regulator says firms have until June 30 to comply

* Total says 'not possible' under current export arrangements

By Fergus Jensen

JAKARTA, Feb 22 (Reuters) - Indonesia told oil and gas contractors they will have to stop shipments if they do not follow central bank rules to channel export revenues through local banks, despite earlier protests from Chevron and Total.

Southeast Asia's largest economy is pushing for massive expansion of its energy sector to meet rapidly rising domestic demand, but its top oil producer Chevron has warned it could reduce its investment if the bank regulation and other issues are not resolved.

"If (oil and gas contractors) keep refusing, they will not be allowed to export," oil and gas regulator (SKKMigas) finance director Akhmad Syakhroza told Reuters on Friday, referring to the Bank Indonesia regulation.

He said firms had until June 30 to comply with the rules, a measure Indonesia wants to better gauge currency flows at a time of heavy downward pressure on the rupiah.

Chevron was not immediately available for comment on the latest warning. In a written statement, Total said under its production sharing contract it had the legal right to "freely lift and dispose of its entitlement and retain its export proceeds abroad."

The subject of natural gas exports is politically charged in Indonesia, where many perceive exports as removing much-needed gas from the domestic market.

The warning underscores tensions between oil majors and the former OPEC member, as pressure mounts over how best to manage its resources in the lead up to presidential elections in 2014.

It also throws into question earlier assurances from the regulator that Indonesia could not afford to cancel gas exports.

"If we breach a contract in the name of nationalism or in the name of ownership it would not be fair. We must adopt a collaborative approach with other countries. I think that is what's best for Indonesia," SKKMigas chief Rudi Rubiandini said last month.

Total, banking proceeds from its gas sales via HSBC in New York, said it was "not possible to match the amount of netback to parties, including the contractors, with the amount of gas export proceed mentioned in export documents."

Syahkroza said all proceeds from the sale of Indonesian natural resources must go through a local bank, regardless of where the transactions took place or what currency they were in.

"If you sell via your seller in the UK, and they give you $1 billion, does that money get transported in cash in a container back to Indonesia? No way. It just gets transferred between banks. What's so difficult about that?"

"TEXAS POKER BLUFF"

In 2012, Total was Indonesia's biggest exporter of natural gas, with production reaching 132,000 boe/day, while Chevron was its biggest producer of crude, accounting for 45 percent of production. The same year, Indonesia's gross revenue from the oil and gas sector reached approximately $61.1 billion, according to data from the regulator.

Under production sharing agreement, oil companies bear all costs until production begins, at which point all their costs are reimbursed by the Indonesian government.

Then the production is divided up 85 percent to the government and 15 percent to the oil firms. For gas the split is usually 70-30, depending on the specific contract.

Several other oil majors operating in Indonesia - ConocoPhillips, BP PLC and CNOOC Ltd - already complied with the regulation, Syakhroza said.

Japan and South Korea are the top buyers of Indonesian crude and took 77 percent of the country's natural gas exports in 2010.

Several traders also said the central bank could damage oil and gas investment. One questioned why the rule, introduced in 2011, had not been implemented earlier.

"It would have been reasonable if the rule was implemented right at the start, not when it's introduced halfway," he said.

"What they do now will affect future production," a second trader said. "If the companies cannot get their revenue out, they are not likely to invest more."

Earlier, Chevron said the regulation added risk to new investment because it "fundamentally changes the fiscal terms of the production sharing contract by impacting the free flow of share cash movement."

Despite the fears, Indonesia remained an attractive place because of its cost recovery structure, energy investor Baduraman Dorpi Parlindungan told Reuters. "Where else can you get a cost-recovery structure like you do in Indonesia?"

When every oilman knows there is 100 percent uncertainty in the industry, Dorpi said, Chevron was playing "Texas poker bluff."

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