Indonesia ends oil production decline

Indonesia ends oil production decline

Indonesia has managed to increase oil production this year, a first for the
country since 2008, mainly due to output from the Banyu Urip Field within
the Cepu Block in East Java.

Following years of a declining trend, daily crude production increased by
6.2% from 786,000 bbl/d in 2015 to 834,000 bbl/d in July 2016, the country's
upstream regulator SKK Migas reported.

The increase in production mainly comes from Banyu Urip Field, which has
been in a full scale production, said Amien Sunaryadi, chairman of SKK
Migas.

He said other projects, such as the ones by the Cooperation Contract
Contractors also exceeded production targets that were set out in the 2016
work program and budget.

"The upstream oil and gas industry in the past two years has been facing
severe challenges as a result of the decline in world oil prices.
Nevertheless, the industry still managed to make some significant
achievements," Sunaryadi said.

Indonesia which re-gained its status as the only Asian member of the
Organization of the Petroleum Exporting Countries (OPEC) in December 2015,
has historically seen a decline in oil production due to aging fields and
limited investment.

As domestic demand was exceeding production, the country become a net
importer of petroleum by 2004, despite being resource-rich. Currently,
Indonesia is in a transitional phase and is beginning to slowly attract the
interest of international investors.

Since the start of the year the government has approved 21 field
developments plans to-date. The 18 projects approved from January-April 2016
alone amounts to about US$1.496 billion in investment, and cumulative
production of 45 MMbbl of oil and condensate and 271 Bcf of natural gas.

Investment levels in the industry increased by 15% from $19.3 billion in
2014 to $22.2 billion in 2015 and are forecast to increase to $23.9 billion
in 2016, a research by PwC showed.

The report, 7th edition of the PwC Indonesia Oil and Gas in Indonesia -
Investment and Taxation Guide, indicated that in 2014 there were seven new
oil and gas contracts signed, with a further 12 contracts in 2015.

According to PwC, the Indonesian government is attempting to incentivize
investment and has also improved production sharing splits in recent bid
rounds with targeted "after-tax" returns for oil increased from 15%-25% and
for gas from 30%-35% to 40%.

In May 2016, as a result of weaker response from its 2015 oil and gas
bidding round, the Indonesian Ministry of Energy and Mineral Resources said
it will review incentives to increase the exploration of new reserves in the
country.

This includes extension of exploration period from 6-10 years, and
ministerial regulation to open oil and gas data to investors. Currently,
companies keen to view oil and gas data in Indonesia have to submit an
application to the government, plus pay a fair some of administration cost.

The country is also in the midst of expanding its maritime sector through
the implementation of a new shipbuilding policy for floating production
storage and offloading (FPSO) vessels, in an attempt to boost domestic
shipbuilding.

This will see FPSOs needed for exploration and production activities in
Indonesia be constructed and converted locally, as opposed to outsourcing
projects to shipbuilders abroad. Indonesi

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com