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SKK Migas: Falling oil price forces oil and gas firms to scale down investment

An offshore oil platform (Image source : PHE)
An offshore oil platform (Image source : PHE)

JAKARTA ( – The Indonesian Special Task Force for Upstream Oil and Gas Business (SKK Migas) said the decline of crude oil price to below US$40 per barrel has forced oil and gas companies operating in Indonesia to scale down their investment as well as reducing operating costs.

“On global scale, the investment in exploration and production declined by 20.3 percent in 2014-2015,” the Head of SKK Migas Amien Sunaryadi said at a press conference on Tuesday (Jan. 5) on evaluation of 2015 performance and outlook of oil and gas business in 2016.

Sunaryadi said realized investment of oil and gas companies that are in production stage (WK Exploitation) in in 2015 reached US$14.8 billion, far below target of US$18.8 billion. The actual investment in the upstream sector in 2014 reached US$18.7 billion, below target of US$22.3 billion.

In 2013, investment in the upstream sector also stood at US$18.9 billion, which was below target of US$22.3 billion.

SKK Migas Chairman Amien Sunaryadi (2nd from right) briefs the press on upstream oil and gas industry performance in 2015 and outlook for 2016.
SKK Migas Chairman Amien Sunaryadi (2nd from right) briefs the press on upstream oil and gas industry performance in 2015 and outlook for 2016.

As for 2016, based on the approved Work Plan and Budget (WP & B) of production sharing contractors (PSCs), the total investment is set at US$15.98 billion.

Oil price has declined sharply since early 2015 after stabilizing at around US$100 per barrel for three and half year due to over-supply. Economic contraction in some parts of the world has put downward pressure on the world crude oil price.

On Jan. 4, oil price closed at US$37.3 per barrel, falling from a peak of US$150 per barrel in 2008.

Based on SKK Migas data, there are currently 314 oil and gas working areas (WK). Of these, 84 are WK exploitation or in production stage, and 230 WKs are in exploration stage (both conventional and non-conventional). Of the 84 exploitation WKs, 66 of them are already in production stage and 18 WKs are in development stages.

Of the 84 WKs, 44 WKs are located in onshore, 28 WKs are in offshore and 12 WKs are operating in both onshore and offshore.

“The data shows that most of the WKs are in exploration stages,” said Sunaryadi.

SKK Migas said PSCs that are in exploration stages plan to invest US$1.24 billion in 2016. The figure was based on agreed WP & B, compared to proposed WP&B of US$1.35 billion.

Of this amount, US$650 million will be used for drilling program, US$290 million for seismic and survey activities, US$140 million for G&A, US$120 million for exploration administration and the remaining funds will be used for G&G study.

In response to falling oil prices, SKK Migas offers various strategies to be adopted by oil and gas companies, which, under the law, are treated as contractors of the government, in this case, SKK Migas.

The first strategy is to be efficient in utilization of capital expenditure and operating expenditure. This applies to development well drilling program, improved work-over and well services, renegotiation of goods and services procurement, review commercial viability of projects.

The second strategy is to maintain exploration activities – study, survey and drilling. “The lower all price should provide opportunities for oil and gas companies to increase exploration as the costs of goods for exploration tend to decline,” said Sunaryadi.

The third strategy is to improve investment climate through simplifying business process and permits as well as demanding fiscal incentives to the government to lure more investment in the upstream oil and gas sector.

The fourth strategy is to minimize the impact of lower oil price on supporting oil and gas industries. This is done by raising local content level of oil and gas projects. SKK Migas, for instance, encourage oil and gas companies, including Pertamina, to use domestic made vessels to support offshore oil and gas operations. (*)

Written by Roffie Kurniawan

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