The government plans to require all contractors working on domestic oil blocks to not ship their share of production overseas and instead supply the domestic market to meet growing demand.
The Energy and Mineral Resources Ministry said such a move would help to strengthen the rupiah.
IGN Wiratmaja, the ministry's director general for oil and gas, said his office was now assessing the possibility of revising the current production sharing contract (PSC), particularly regarding sales destinations.
Under existing contracts, oil production is split between the government and contractors in certain proportions. The contractors are allowed to manage the distribution of their portion themselves. Most send the oil abroad.
According to Wiratmaja, the entire oil output should be sold in the domestic market with the contractors getting their money afterward. Instead of dividing the oil with the contractors, the government needs to divide the money after selling the oil on the domestic market, he said.
"We are still assessing the impacts of the changes, including on the current contracts. The volume [of oil sold overseas] is quite significant and we are expecting a strengthening of the rupiah [if it is sold domestically]," Wiratmaja said.
Based on data from the oil and gas directorate general, the country's total oil and condensate output reached 290 million barrels in 2014. Out of the total, as many as 111 million barrels were sent abroad, consisting of a portion of the government's share, unable to be processed at domestic refineries, and contractors' shares.
Wiratmaja said that his office has yet to officially inform the contractors of the plan and admitted that the issue would be complicated to a certain extent.
"Some contractors have refineries, or networks of refineries, overseas and therefore have to deliver their oil output to overseas facilities. However, there are also contractors that don't have [these constraints]," Wiratmaja said.
Indonesia, which is currently aiming to re-activate its membership at the Organization of Petroleum Exporting Countries (OPEC), has been struggling to maintain its production levels as oil fields become mature and depleted. Meanwhile, the demand for energy continues rising in line with economic growth. Consequently, the country has to import a huge amount of crude oil and petroleum products to meet the demand.
Domestic demand is approximately 1.5 to 1.6 million barrels per day (bopd). Meanwhile, current production, including government and contractors' oil shares, is only around 800,000 bopd.
ExxonMobil vice president of public and government affairs Erwin Maryoto said pricing would be an issue.
"Normally, we look for the best market. And the domestic market can be the best if the price is the best," he said.
Under the state budget, the country is targeting 825,000 bopd of oil output this year, slightly higher than last year's 794,000 bopd. The increased production is expected to be largely achieved by the Banyu Urip oil field of Cepu block in East Java.
Banyu Urip is operated by ExxonMobil Cepu Limited and has reached 80,000 bopd of production. After current works are completed later this year, that figure is expected to peak at 205,000 bopd.