Indonesia's Oil Output Hike Hinges on East Java

Oct 20, 2005 (Dow Jones Commodities News via Comtex) By Irene Tang Of DOW JONES NEWSWIRES -- GYEONGJU, South Korea (Dow Jones)

Indonesia is relying on two new oil fields in East Java to help raise its crude production.

But any new significant output won't show up in the short term, Indonesia's Mines and Energy Minister Purnomo Yusgiantoro told Dow Jones Newswires in an interview.

"If everything goes smoothly, we hope to be able to increase our production significantly," said Purnomo.

Purnomo is in the southeastern city of Gyeongju to attend the 2nd APEC Meeting of Ministers Responsible for Mining Thursday, after participating in the 7th Asia-Pacific Economic Cooperation Energy Ministers' Meeting Wednesday. The two upstream projects Purnomo was referring to are the Cepu and Jeruk oil fields in East Java.

So far, work on Cepu has yet to start, as potential shareholder Exxon Mobil Corp. (XOM) has yet to enter into final negotiations with Indonesia's state-owned Pertamina (PTM.YY).

But once it comes onstream, Cepu is expected to add 150,000-200,000 barrels a day of output for Indonesia.

Another oil field Pertamina is looking at is the Jeruk field in East Java. Purnomo said he is expecting potential output of 50,000-100,000 b/d from Jeruk.

"Jeruk field now has a couple of wells, but from these (wells) we see very optimistic production. I think when more wells are added, we are willing to fast-track (things) so the field can produce quicker," he said.

But for now, Pertamina will have to settle for less production.

Indonesia's crude output will reach 1.07 million b/d, following a gross increase of new output of 60,000 b/d from other fields, rising to 1.11 million b/d next year.

The 60,000 b/d of production was just brought onstream from a range of new fields Wednesday, said Purnomo, without providing further details.

"But I think that is not enough. We need more than that in order to compensate for the decline of oil production," he said, noting that half of Indonesia's output comes from old oil fields in Central Sumatra.

Cut In Subsidized Oil Product Volumes

Meanwhile, Indonesia plans to cut the volume of its subsidized oil products next year, as it strives to ease its oil subsidy burden.

"This year, 1.1 (million) to 1.2 million b/d of oil products are being subsidized...Next year, the volume will be less than that, about 700,000 b/d," said Purnomo.

According to Purnomo, the volume of subsidized refined products this year is equivalent to two-thirds of the country's oil consumption.

Indonesia slashed its fuel subsidies and raised refined products prices dramatically Oct. 1 to reduce the strain of the subsidies on its budget. Last year, oil product subsidies drained state coffers of $7.4 billion, or 3% of gross domestic product.

As a result, gasoline retail prices were raised by 87.5%, diesel by 105% and kerosene by 186%.

But regular and premium gasoline, kerosene and diesel remain subsidized, but to a lesser extent now, for the poor.

"This (cutting of subsidies) is becoming sensitive and becoming a political issue in our country, so you have to be careful. When you remove a subsidy, you cannot remove it very quickly, you have to do it step by step," he said.

"We're not (giving) price subsidies anymore. We are (now) using the direct subsidy. (Fuel) subsidies are still given to people, but not in the form of the oil price."

However, he was vague on how the government will cut the volume of subsidized oil products next year.

"We have this statistics bureau, (from which) we know which people are supposed to have the subsidy and which people...are not," he said.

Still, Purnomo doesn't see a substantial fall in domestic oil consumption, despite state-owned Pertamina having recently deferred deliveries of some of its gasoline imports to November from October.

"Probably demand in absolute value is increasing, because of economic activities and population growth," he said.

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