The Indonesian Petroleum Association (IPA), a powerful grouping of local oil and gas producers, has elected Ron Aston as its new president.

Aston, who is also the president of Talisman Energy Inc. in Indonesia, is IPA's 32nd president, replacing the former IPA president, Roberto Lorato, who has concluded his tenure in Indonesia.

"With the election of Mr Aston, we trust the existing good relations and cooperation between the organization and Indonesian government will continue," IPA executive director Dipnala Tamzil said in a statement on Tuesday.

IPA has more than 50 company members and 94 associate members, and was formed in 1971.

"IPA has been supporting and working with the government of Indonesia to address crucial issues in the oil and gas sector for more than thirty years.

"I'm very excited and looking forward to serving the organization and contributing more to the development of the oil and gas industry in Indonesia," Aston said.

Oil and gas companies in Indonesia face tough challenges in anticipating declining production due to aging fields.

This year, Indonesia has set oil lifting at 960,000 barrels of oil per day (bpd), much less than the domestic demand of between 1.3 and 1.4 million bpd.

As of May 20, the average oil lifting realization was just over 950,000 bpd, upstream oil and gas regulator BPMigas said.

To help boost future oil production, oil and gas contractors plan to spend up to US$13.15 billion on investment in exploration and production in 2009, up from about $10 billion in 2008.

During the IPA's annual convention and exhibition last month, Lorato said contractors would need more capital in the future since they are now working in difficult oil and gas fields.

Energy and Mineral Resources Ministry upstream oil and gas director Edy Hermantoro said new oil and gas exploration is now concentrated more in eastern Indonesia because of its bigger potential reserves.

However, drilling in the east is far more expensive than in the west, he said.

The average cost for offshore "wild cat" wells in eastern Indonesia was between $40 million and $50 million, while in western Indonesia the equivalent was between $7 million and $8 million, Edy said.

Oil and gas contractors also face challenges to adjust to the government's new production sharing contracts (psc), especially with the cost recovery mechanism - a scheme which allows operators to claim expenses during exploration stages.

The mechanism is meant to serve as an incentive for investment in this sector.

Starting this year, the government and the House of Representatives, through the law on the 2009 state budget, have capped cost recovery spending at about $12 billion.