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Indonesia, an island in the South Pacific, is known for having the largest Muslim population in the world. Because the Island is in the South Pacific rather than being part of the Middle East, most people do not associate the island nation with oil. Even though people do not associate the island nation with oil, Indonesia is a member of the Organization of Petroleum Exporting Countries. The oil is not found in the country. The oil is found offshore. If someone wants to find a good job opportunity, he needs to go to an offshore oil rig. There are many offshore oil rig job opportunities in Indonesia.

The Republic of Indonesia is an archipelago, of approximately 17,580 islands, found in Southeast Asia and Oceania. The government is made up of a multi-party parliament which for the past few years has continually introduced regulatory changes, increasingly attracting and encouraging business and foreign investors. Some investment sectors, such as mining, gas and oil, are given special incentives by the government thus making the challenges way less than opportunities.

With 3.18 trillion cubic meters of proved gas reserves which can produce up to 1004 thousand barrels of oil per day, Indonesia is the top Asian country for gas reserves, 10th gas producer and 7th gas exporter in the world. As the demand for gas and oil grows, natural gas is one of the key products exported to the major world markets and Indonesia has the ability to meet these demands. However, the country is faced with maturing oil fields and declining oil reserves and the only solution, at this point, is to discover more reserves by attracting investment into this upstream and downstream sector.

The Indonesian government has set up special investment arrangements by way of contracts and laws to assist foreign investors in exploring and exploiting the natural resources while the delivering a rational return to the government. The terms of the contract regulates recovery costs, royalties paid to the government and the rates of taxes paid by the investors while the laws set guidelines under which investors must conduct business.

Law No.22 was signed on November 23, 2001(Law No. 22/2001) to regulate gas and oil activities. The law states the differences between upstream and downstream business activities and ensures that all activities related to gas and oil are effective, resourceful, viable and all explorations and exploitations are justifiable. The law also guarantees accountable processing, transport, storage and commercial businesses through just and clear business competition; ensures an efficient supply of oil and gas as an energy source and for local needs; and preserve the environment and enrich public welfare and prosperity fairly.

Another relevant law for investors is the Energy Law No. 30 /2007(signed on August10, 2007). This law provides a new legal agenda for the overall energy sector, with emphasis on profitability, energy security and environmental preservation.

Upstream business activities such as exploration and exploitation are controlled by Production Sharing Contract and an executing agency while downstream activities such as processing, transport, storage and commerce, are controlled by business licenses issued by a regulating agency. The regulating and executing agencies, BPH Migas and BP Migas supervise investor activities to ensure:

a) the protection of all resources and reserves;
b) that safety measures are in place for the working environment;
c) all data on oil and gas is documented;
d) the superior quality of processed products;
e) pollution and environmental damage are minimized ;
f) local services including manpower, goods and engineers are utilized; and
g) the growth of local communities.

Product Sharing Contracts are ‘joint cooperation contracts’ used in upstream business activities. PSCs, as they are called, have evolved and the details have been changed at least five times, with the main variation between each being the production sharing split. The three main points in the contract are:

1) the government and investors agree to divide profits based on percentages;
2) the investor recovers operating costs based on ‘cost oil formulas’ defined by the contract; and
3) the investor’s right to dispose of his share of oil and gas.

In this latest variation of the PSC, after tax equity split is negotiable, there are limits on items available for cost recovery and investment credits are offered as incentives in other areas. However, expenses incurred before the PSC is signed cannot be transferred to the agreement for reimbursement. These costs are recorded by the investor and appear as a bonus when the final contract is signed.

In order for Indonesia to meet its current internal and external demand for refined petroleum products, it has to recognize that it is a necessity to allow foreign investment into the refining sector. This demand is high and presents a great opportunity for the country to gain much needed revenue. This is good move, not only for investing in oil and gas, but also for the equipment and service providers who are brought in by the investors. Indonesia stands out for its tactical expansion plans of its oil and gas industry.

When reports of the discovery of oil become publicly acknowledge in a region it invariably connotes such great potential with regards to wealth that nations are often tempted to think that the world was theirs for taking. Such is the buying power of oil that national and local governments fight for the right to sell and possess it. With the majority of the power to control oil in the hands of the United States and several (dwindling) Arabic countries, America’s race to possess more oil-rich deposits grows ever-more frantic.

When news struck of oil as a natural resource in Indonesia was discovered in the North Aceh region by the American oil giant Mobile, in 1971, many unfortunate events have taken place. While under an agreement with the central government of Indonesia, American oil companies including Mobile began exploiting the oil and gas rich regions of Aceh. The native people in Aceh began to complain to the government that the oil profits from the American oil companies were not being equally distributed. The native population sought help from Hasan di Tiro, a previously serving ambassador of Dural Islam, to declare Aceh’s independence in 1976.

No one in the region could have anticipated that Aceh’s oil as a natural resource in Indonesia could have caused a declaration of independence, but with deposits of oil in Aceh being as tangible as tap water, the western oil and gas companies have managed to set their eyes on taking control of the oil resources in the area. Oil being the industrialized world’s fuel has create extreme tension between the Indonesian government and many other political factions both within and outside Indonesia that wish to take control of the Aceh’s oil.

Indonesia had itself begun joining in the oil trade as recently as 2005, but already they have been affected by the startling rise in oil prices. And while the people no longer view oil as a natural resource, something of a scarcity, the economical status of the common folk in Indonesia has not improved, even while oil and gas prices have risen drastically in recent years. What’s more, with their sources in oil believed to be limited, several larger nations have set their sites on ‘getting it while they can’, a mentality that has garnered only chaos for Indonesians and the poor provinces that have been found to be rich in oil deposits.

It is startling how the state of affairs finds it nearly impossible for a nation to choose to control and import resources found in its own land, and how powerful oil and gas corporations instead get first pick on who controls those resources. Sadly, the Free Aceh Movement created to thwart foreign corporations from pillaging the natural resources in the area during the late 1980’s caused many security incidents which prompted the Central government under then President Suharto, to take repressive measures against the people of Aceh, which resulted in human rights abuses that went on for a decade.

The initial reaction from the profits that came from the oil revenues were positively motivating, and many in Aceh and within the national government imagined that the oil as a natural resource in Indonesia would invariably usher the country into a higher status within the oil exchange playing field of competing oil exporting nations across the globe.

Despite the unfortunate events of the past, investments in oil and gas in Indonesia has increased exponentially over the past few years. According to Evita Legowo, director general of Indonesia’s ministry of energy and mineral resources, profits from the country’s oil investments are expected to grow by more than US$68 million over the next three years from new contracts.

According to the Business Wire, and other investment news companies, the future of oil as a natural resource in Indonesia is a bright one. Comprehensive studies have provided many positive outlooks for Indonesia’s oil and gas sectors up through 2020. While incidents and conflicts from local governments and people in regions throughout Indonesia over alleged unequal distribution of profits from oil and other natural resources have occurred, the Indonesian central government under pressure from the United Nations, and various human rights organizations pressuring politicians to review and reconstruct revenue sharing agreements with local governments and peoples. This is meant to give a greater voice to local governments and peoples when negotiating contracts with corporations wishing to invest in the country’s natural resources.