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According to Oil & Gas Journal (OGJ), Indonesia had 4.3 billion barrels of proven oil reserves as of January 2007. Oil production in Indonesia has decreased steadily during the last decade, owing to disappointing exploration efforts and declining production at Indonesia’s large, mature oil fields. Sector Organization In October 2001, Indonesia’s oil sector experienced significant reforms with the passage of the new Oil and Gas Law No. 22/2001. The law forced state-owned oil company Pertamina to relinquish its role in granting new oil development licenses and limited the company’s monopoly in upstream activities. Pertamina’s regulatory and administrative functions were transferred to the new regulatory body, Badan Perlaksanaan Minyak Gas, or BP Migas. Pertamina was formed into the limited liability company PT Pertamina (Persero) by presidential decree in 2003, although it remains a state-owned entity. PT Pertamina is laying the groundwork for full privatization to take place at some point in the future. Indonesia’s oil sector is dominated by several international oil companies (IOCs). The single largest oil producer is Chevron, which controls Caltex Pacific and Unocal’s former Indonesian assets. BP, ConocoPhillips, ExxonMobil, and Total are also significant oil producers in the country, with China’s state-owned companies PetroChina and China National Offshore Oil Corporation (CNOOC) also having a considerable presence. The liberalization of Indonesia's downstream oil and gas sector has been under discussion for several years. Pertamina maintained its retail and distribution monopoly for petroleum products until July 2004, when the first licenses for retail sale of petroleum products were granted to BP and Petronas of Malaysia. However, Pertamina maintains a dominant position in Indonesia’s downstream sector, operating all eight of the country’s refineries. The government is still promising to open the sector to full competition, although progress has been slow to date. Indonesia historically has maintained consumption subsidies for domestic retail fuel consumers, with products being sold at a discount from world market prices. After a series of modest increases in petroleum prices over the past few years, President Yudhoyono announced a sharp rollback of subsidies in September 2005. Prices of retail gasoline and diesel rose by an average of 125 percent as a result. Despite this one-time move, fuel consumption subsidies still take up a sizeable portion of government expenditures. Exploration and Production

Indonesia’s largest oil producing fields are mature and declining in output.

During 2006, Indonesian oil production averaged 1.1 million barrels per day (bbl/d), of which 81 percent, or 894,000 bbl/d, was crude oil. Indonesia’s total oil production has dropped by 32 percent since 1996, as many of the country’s largest oil fields continue to decline in output. Indonesia’s current OPEC crude oil output quota is set at 1.45 million bbl/d, well above the country’s production capacity. During 2006, Indonesia’s oil consumption reached 1.2 million bbl/d, making it a slight net importer of oil for the year. Indonesia’s two largest oil fields are Minas and Duri, which are operated by Chevron and located along the eastern coast in Sumatra. However, the Minas and Duri fields are mature and production at these locations has been on the decline. Various oil exploration projects are underway in Indonesia. However, to date, these projects have not brought sufficient new oil resources onstream to offset the declining production levels at older fields. One of Indonesia’s last undeveloped oil fields is the Cepu block, located in East and Central Java. ExxonMobil’s local subsidiary discovered 250 million barrels of proven oil reserves in the Cepu Contract Area in 2001, and today the company estimates the area could hold up to 600 million barrels of recoverable oil reserves. ExxonMobil hesitated to develop the promising oil resource, however, because the company’s contract for the area was set to expire in 2010. After several years of negotiations, in March 2006 ExxonMobil and PT Pertamina signed a joint operation agreement (JOA) for the Cepu field. Each company will have a 45 percent stake in the project, with the remaining 10 percent held by provincial governments in East and Central Java. The project is scheduled to begin production in 2008, with peak production expected to reach 180,000 bbl/d. BP Migas and the Indonesian government have introduced policies aimed at increasing investment in the country’s upstream sector. BP Migas set up various incentive programs for firms to develop marginal oil resources throughout the country that would not otherwise be attractive to international companies. In October 2006, the government waived import taxes on capital goods for oil and natural gas exploration and production. BP Migas has also held several competitive bidding rounds for new upstream projects throughout Indonesia. During 2006, BP Migas concluded its fifth round of acreage offerings in which it awarded dozens of new exploration and production licenses to companies. During the fifth bidding round, a handful of exploration blocks were awarded to international oil majors, such as ExxonMobil and ConocoPhillips, although the majority of tenders were won by smaller Indonesian firms. Downstream/Refining According to OGJ, as of January 2007, Indonesia had 992,745 bbl/d of refining capacity at 8 facilities, all of which are operated by PT Pertamina. The largest refineries are the 348,000-bbl/d Cilicap facility in Central Java, the 241,000-bbl/d Balikpapan plant in Kalimantan, and the 125,000-bbl/d Balongan refinery in West Java. PT Pertamina announced in August 2006 that it plans to spend $10 to $11 billion on boosting Indonesia’s downstream sector over the next 5 years. As part of this effort, there have been various proposals to upgrade existing refineries or build new facilities, as well as to expand the country’s transmission, distribution, and marketing network. However, of the numerous proposals that have been offered, the only project that has moved forward significantly is the planned refinery at Pare-Pare. Local firm PT Intanjaya Agromegah Abadi, with financial backing from Saudi investors and U.S.-based Inter Global Technologies, began construction on the facility in February 2006, which is slated to be Indonesia’s first privately-owned refinery. The facility will have a nameplate capacity of 300,000 bbl/d and is expected to be completed in 2010. Various other refinery projects have also been proposed. In December 2006, PT Pertamina and China’s Sinopec completed a feasibility study of a proposed 200,000-bbl/d refinery in Tuban, East Java. While a Memorandum of Understanding (MOU) was reached between the two companies in 2005, there are no firm plans to begin construction on the proposed project. PT Elnusa, a subsidiary of PT Pertamina, has studied the possibility of building a 300,000-bbl/d refinery in a consortium with Venezuela’s Petroleos de Venezuela SA (PdVSA), Iran’s National Iranian Oil Refinery and Distribution Company (NIORDC), and Japanese investors.

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