Former OPEC member's Byzantine rules seen shooing away explorers
Pubdate：2017-05-12 10:15
Source：liyanping
Click：
JAKARTA (Bloomberg) -- Red tape, rising costs and declining crude prices are throttling exploration in Indonesia, the former OPEC member that now produces less oil than it uses.
Only 20% of the 287 onshore rigs operated by contractors for local and foreign explorers are at work, compared with 60% in 2012, according to Wargono Soenarko, chairman of the Indonesian Oil, Gas and Geothermal Drilling Contractors. Four out of six offshore rigs are operational, he said in an interview.
The decline in drilling reflects uncertainty over regulation, a complicated permits system as well as high production costs that have deterred investments for new exploration, Soenarko said. It’s a challenge the government needs to tackle for success in its plan to overhaul the nation’s energy policy and lure as much as $200 billion to the sector over the next decade as domestic demand rises. A 2015 auction of oil and gas blocks failed because the terms offered weren’t attractive for bidders.
“Our contracts can be suddenly changed and there are layers of permits in the regions for drilling,” Soenarko said. “With the drop in oil prices, investors aren’t keen as it doesn’t have a good prospect. Indonesia is no longer a choice for oil and gas investment.”
Indonesia pumps about 800,000 bopd and imports 500,000 bpd, Energy and Mineral Resources Minister Ignasius Jonan said last month. While the government wants to boost output to 1MMbpd by 2019, Wood Mackenzie Ltd. estimates it will drop to 500,000 bpd in 2021. The nation’s production has dropped more than 50% since the mid-1990s.
While upstream investment is set to increase elsewhere in 2017, it’s going to be a “little slower for investment to return” to Indonesia, said Andrew Harwood, Research Director for Asia-Pacific Upstream Oil and Gas at Wood Mackenzie. “The fiscal terms and the regulatory environment mean that it’s struggling to compete with other opportunities elsewhere.”
As it produces less oil, the Southeast Asian nation is using more of it. Consumption is forecast to reach 1.78 MMbpd by the same year from 1.73 million in 2017, according to Wood Mackenzie.
In Indonesia, companies take about 15 years from exploration to the start of production while in other countries it may take from four to six years, said Soenarko, who has seen his association’s membership drop to 369 from a peak of 459 in 2012. The average cost to produce a barrel of oil in the nation now averages $40, which isn’t enough to compensate investors to find new resources given the slump in crude, he said.
West Texas Intermediate oil, the U.S. benchmark, is trading near $48/bbl in New York while global marker Brent crude is near $51/bbl. Both are more than 50% lower than their peaks in 2014.
Weak returns
The return on investment at deep-water discoveries in Indonesia based on the gross-split term proposed by the government will be less than 15%, below the global standard of 25%, Harwood estimates.
Some companies have cut their exposure to Indonesia, including ConocoPhillips and Inpex Corp. that have sold their entire interests in South Natuna Sea Block B to PT Medco Energi. Inpex also hasn’t been able to develop the Abadi gas field in the offshore Masela block since it signed a contract in 1998. The government in March 2016 ordered the Japanese company to build an onshore liquefaction plant instead of the planned floating-LNG facility, raising questions about the viability of the $14 billion project amid a price crash in the fuel.
“Companies around the world have reduced budgets and are much more focused on their investments,” Singapore-based Harwood said. “They are looking to invest in opportunities that provide them with the best returns, the lowest risks and the quickest return on their capital. Unfortunately, Indonesia isn’t a country that offers those kind of things.”
Exhibitor Login