| JAKARTA, Sept 22
JAKARTA, Sept 22 Indonesia said on Thursday it
will eliminate taxes on oil and gas exploration this week in an
effort to bolster investment in the country's flagging oil and
Oil and gas director general Wiratmaja Puja said the
government was aiming to remove all taxes on exploration,
including a value-added tax on imported goods and a land tax
that had been a deterrent to investment since it was introduced
"Global exploration (companies) will return
enthusiastically," Puja told reporters on Thursday. "Investment
The government has been trying to revive flagging oil and
gas production but investors have been deterred by low global
oil prices and regulatory and investment risks in Indonesia.
Indonesia's crude oil output peaked at around 1.7 million
barrels per day in the mid-1990s. But with few significant oil
discoveries in Western Indonesia in the past 10 years,
production has fallen to roughly half that as old fields have
matured and died.
Acting energy minister Luhut Pandjaitan had earlier told
reporters the new regulation was due to be announced on Friday,
and "will definitely be attractive."
"There needs to be compensation," he said, referring to the
"high risk" in offshore and deep water exploration wells that
could cost more than $100 million each to drill.
Under the new regulation, the government will provide oil
and gas contractors an internal rate of return above 15 percent,
While the government is scrambling to prevent oil production
from falling next year to its lowest level since 1969, it is
also under pressure to keep a lid on how much the government is
liable for on contractors' recoverable costs. Those are seen
hitting $10.4 billion in 2017 above a targeted $8 billion this
"We are seeking an equilibrium (where) production climbs but
costs can be low, so we are talking about efficiency,"
Cost recovery is the amount of money spent on exploration,
development and operations that contractors can reclaim from the
government after their oil and gas operations start producing.
The government has slashed cost recovery spending with
efforts to improve efficiency since 2014, but this could also
discourage oil well development and maintenance and constrain
its ability to boost output, an official at the industry
regulator said in June. Production costs are typically higher
from mature wells.
The industry is a vital part of the Indonesian economy, but
its contribution to state revenue has dropped from around 25
percent in 2006 to an expected 3.4 percent this year, according
to data compiled by consulting firm PricewaterhouseCoopers(PwC).
"Interest in exploration in Indonesia nosedived in 2013 due
to the Land and Building Tax issue and has yet to recover," the
Indonesian Petroleum Association said in its 2015 annual report.
Most of Indonesia's oil and gas production is carried out by
foreign contractors - including Chevron,
ExxonMobil, BP, Total, and
ConocoPhilips - who operate under production-sharing
contract (PSC) arrangements.
Indonesia holds proven oil reserves of 3.7 billion barrels,
and is ranked in the top 20 oil producers globally.
(Writing by Fergus Jensen; Additional reporting by Hidayat
Setiaji; Editing by Bill Tarrant)