UPI Energy Watch

Indonesia needs an overhaul to root out abuses in the oil and gas sector.

Cost recovery claims from oil and gas contractors to the government are the subject of debate as they cost the state revenue, the Jakarta Post reported.

For fear of losing investment contracts, the government gives billions of dollars in incentives to oil and gas contractors for expenses related to investments and operations in Indonesia.

An audit by the Supreme Audit Agency published last year on the 2005 accounts of nine oil and gas blocks unveiled some $525 million in questionable claims for government refunds under the cost recovery scheme.

The refunds were filed by France-based Total E&P Indonesie, U.S.-based ExxonMobil, Chevron, Conoco Philips and Vico and China's CNOOC.

Items claimed for refund ran the spectrum from a Pinocchio DVD to a complicated chain of transactions often involving drilling. Those expenses, the SAA concluded, reduced the government share of revenue from the oil and gas sector.

In 2005 the government received $19.9 billion net take from the oil and gas sector after paying out $7.68 billion in refunds.

Italian energy group Eni will take over Tullow's North Sea oil field.

Eni paid nearly $420 million to take control of a North Sea field that it plans to turn into Britain's biggest gas storage facility.

Eni bought Tullow Oil's 52 percent stake in the Hewett Unit field, bringing its total stake in the field to 89 percent.

The deal comes as the latest estimates on energy supplies for next winter highlight the importance of gas storage in meeting the United Kingdom's energy needs, and the Hewett field is close to the Bacton terminal, a key access point for bringing gas into the United Kingdom.

Eni is planning to turn it into a storage facility that would be capable of holding up to 5 billion cubic meters of gas by 2013.

According to Eni, that would double Britain's existing gas supply and represent more than 5 percent of annual gas demand.

The first premium oil production in the Philippines will be collected next week.

Officials predict that June 16 in Palawan oil flow will begin from the Galoc Oil Field. Development of that field is part of the country's efforts to supply 10 percent of the country's daily needs, Energy Secretary Angelo Reyes said.

Reyes said at the current international rate of $135 per barrel, the increased domestic production could translate to about $1.4 billion worth of savings over two years.

Reyes stressed the locally produced oil would be sold in the country and not exported.

Initial production of at least 17,000 to 20,000 barrels of premium oil per day is expected at the Galoc field and it could increase to 30,000 barrels a day within a few months.

Reyes said about 10 million to 20 million barrels of premium oil would come from the Palawan field but additional exploration would be done to look for additional reserves.

The energy chief said by selling the oil to local refineries like Shell and Petron the price of gasoline could be lowered as well.

Reyes said aside from the Galoc, operator Exxon Mobil Corp. also has expressed interest in exploring for oil and gas in the country, particularly in Sulu.

He said Exxon officials have already acquired 50 percent of the ownership and operations of Malaysian exploration company Mitra Energy Ltd.

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Closing oil prices, June 11, 3 p.m. London

Brent crude oil: $136.19

West Texas Intermediate crude oil: $136.45

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(e-mail: energy@upi.com)