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As the 2014 general elections approach, President Susilo Bambang Yudhoyono has warned the interim upstream oil and gas watchdog, SKKMigas, to resist any "political interference" in its attempts to meet the country's oil output target and raise investment in the sector.
Speaking to reporters after a meeting with SKKMigas head Rudi Rubiandini on Tuesday, Yudhoyono said that political interference, which could escalate ahead of the 2014 general elections, should be rejected because it would hurt the investment climate in the oil and gas sector.
The President described increasing investment in the upstream oil and gas sector as "vital" to boost the nation's economic growth amid sluggish exports.
"Heightening the investment level in the upstream sector is important as every country in the world — including our own — has been suffering economic slowdown due to sluggish exports," said Yudhoyono, a former mining and energy minister, at the Presidential Palace.
Indonesia, formerly Southeast Asia's sole representative at the Organization of the Petroleum Exporting Countries (OPEC), has been struggling to woo more investment in its upstream sector as its crude oil production dwindles due to aging fields.
Currently the country's average daily oil output is 834,000 barrels per day (bpd), much lower than the estimate in the 2013 State Budget of 900,000 bpd.
SKKMigas chief Rudi said the regulator aimed to achieve a level of 840,000 bpd by the end of this year, saying the target was "far more realistic", but warning that one third of the daily output would be allocated to the oil and gas companies as their share.
"With that, in reality, Indonesia only receives around 500,000 to 600,000 bpd of oil while national consumption stands at around 1.4 million bpd," he said.
On top of this, investment in the oil and gas sector this year for exploration — which is crucial to discover new, profitable oil reserves — remains low.
Out of the US$26.2 billion in investment expected this year by 200 contractors, only around 10 percent, or $2.7 billion, will be allocated to exploration and the drilling of 75 oil and gas exploration wells.
This year's investment by the contractors is an increase from last year's investment of $2 billion.
Problems related to land acquisition as well as legal uncertainty have been cited as the factors behind the low level of investment in the upstream oil and gas sector.
Oil and gas contractors such as American companies Anadarko and Hess have reportedly left the country due to these reasons.
Yudhoyono, acknowledged to reporters that he often received information about escalating political interference in the upstream oil and gas business.
"I have advised [SKKMigas] to avoid this kind of interference because we want to have good governance in the sector," said Yudhoyono, whose close political ally Jero Wacik is the energy and mineral resources minister.
Research by the Wood Mackenzie Group earlier this year showed that Malaysia had surpassed Indonesia in 2012 as the key player in the upstream hydrocarbon industry in Southeast Asia.
The Edinburgh-based global oil and gas research specialist noted that while Malaysia discovered 1.4 billion barrels of oil equivalent (boe) last year — or 72 percent of the total discoveries in the region — Indonesia only discovered 13 million boe of new reserves in 20 new oil and gas fields — a mere 14 percent.
Following the brouhaha over the opening of a Free West Papua (OPM) office in the British city of Oxford, Rudi denied allegations that the recent shutdown of a liquefied natural gas (LNG) facility at British giant BP's Tangguh plant in Teluk Bintuni, West Papua was related to the issue.
"One of the LNG trains has indeed been shut down for two months but it is merely due to scheduled maintenance," he said.
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