May 2, 2018 / 11:26 AM / a year ago

UPDATE 1-Indonesia's president aims new broadside at Pertamina, 'convoluted' energy rules

* President Widodo says investors can report to him

* Pertamina plans to increase exploration

* Investors expect contracts to be competitive -Chevron (Adds comment from Pertamina, context)

By Bernadette Christina Munthe

JAKARTA, May 2 (Reuters) - Indonesian President Joko Widodo on Wednesday slammed state-owned oil firm Pertamina, saying it hadn’t invested enough in exploration, while blasting red tape hobbling the industry and urging investors to report problematic rules to him directly.

Widodo’s comments come after the government in April sacked Pertamina’s chief executive after repeated clashes with the government over fuel price controls estimated to have cost the firm some $1.4 billion from January to September last year.

“What often makes me shake my head in the oil and gas sector, for example, is Pertamina,” said Widodo, speaking at the opening of the annual Indonesia Petroleum Association (IPA) conference. “Since the 1970s there has never been major exploration. What is going on?”

In response, Denny Tampubolon, Pertamina’s senior vice president for upstream business development, said the company would increase exploration, noting that the state company now does most of the exploration drilling in Indonesia.

Tampubolon referred to extensive geological surveys and high-risk wells costing hundreds of millions of dollars.

Pertamina plans to drill 20 exploration wells this year, up from 15 last year, but its discoveries are often limited because it is largely operating in mature fields, Tampubolon said.

Pertamin’s oil and gas production increased to 7 percent to 693,000 barrels of oil equivalent (boepd) in 2017, partly as a result of overseas investments.

Indonesia was once a major crude oil producer and exporter, and a member of the producer cartel of the Organization of the Petroleum Exporting Countries (OPEC), with output reaching more than 1.6 million barrels per day (bpd) in 1995.

But at that time Indonesia’s exploration and development was dominated by international oil majors. Since then an uncertain regulatory environment and a lack of investment to find new reserves have turned Indonesia into a net oil importer.

International firms such as ConocoPhillips and Chevron have reduced holdings, and the nation’s overall crude output now stands well below 1 million bpd.

Private investment in the oil and gas sector slumped to a multi-year low of $9.3 billion in 2017, compared to a target of $13.8 billion, according to BMI Research.

Widodo said on Monday he had directed the country’s Energy and Mineral Resources Minister to “axe as many regulations as possible” in an effort to improve investment.

“I need to remind our ministries that our regulations are not conducive (to investment). They are still convoluted, there’s still a lot of procedures and they’re still complicated,” he said.

“I want to know which regulations are still creating headaches,” he added. “Please report to me or the minister.”

Hoping to attract more investment, Jakarta recently eliminated a raft of regulations and introduced tax breaks and a gross split mechanism for production sharing contracts.

In Indonesia, investors expect contracts that support operating performance, competitive financial value and revenue, Chevron said in a statement on Wednesday.

“It’s very clear the Energy and Mineral Resources Ministry has received industry input and strengthened provisions to improve the competitiveness of this scheme,” Chevron IndoAsia business unit director Chuck Taylor said, referring to gross split contracts.

Indonesia announced four winners from five blocks in a direct offer tender on Wednesday, including Lion Energy and units of ENI and Repsol.

Interest in Indonesia’s tenders has been tepid, though, and the industry has pointed to more attractive opportunities in other countries.

Investors have also criticised Jakarta’s decision to hand exploration and development rights on expiring oil blocks to Pertamina in compensation for its losses on government-set retail fuel prices.

Reporting by Bernadette Christina Munthe; Writing by Fergus Jensen; Editing by Henning Gloystein and Kenneth Maxwell

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