Indonesia Wants Provinces To Hold 10% Stake In Oil Fields

The Indonesian government will require foreign and local oil and gas companies to offer a 10% stake in their new oil and gas fields to companies owned by provincial governments where the fields are located.

According to the final draft of the upstream oil and gas regulation obtained by Dow Jones Newswires Tuesday, oil and gas companies must offer the stake immediately after the government approves their plans to develop the fields.

They must offer the stake to other local private companies if companies owned by provincial governments aren't interested in buying the stake in two months, says the draft, which is still awaiting final approval from the president.

They can close the offering two months later if there aren't any Indonesian companies interested in the stake, the draft stated.

The new policy will likely be implemented in response to demand from provincial governments seeking higher revenues from oil and gas reserves in their areas. It remains unclear how oil and gas companies will react to the plan as such a policy could complicate their future operations.

The mines and energy minister will decide the revenue split from oil and gas blocks based on the risks and difficulties of the blocks. This means the government will apply different revenue sharing rates on different blocks.

Currently, the government takes 85% of revenue from all oil blocks except some blocks operated by state-owned oil and gas company PT Pertamina (PTM.YY). For gas blocks, the government takes 65% of revenue regardless of the risks and difficulties.

The government will also require companies to pay all of the money they plan to invest during the first 3 years of exploration if they fail to complete their working plans during the period.

A government official has said that this policy is aimed at curbing the rising number of oil and gas blocks in the country that have been left idle because companies that were awarded the contracts failed to develop the blocks.