Interview: Amien Sunaryadi
What is your overall assessment of upstream oil and gas activities in Indonesia?
AMIEN SUNARYADI: Indonesia’s upstream oil and gas industry still plays a vital role in the country, both as an energy supply and a source of state revenue. However, the industry is currently facing some challenges. Indonesia has been a net oil importer since 2004, and since 2003 gas production has been more dominant than oil in terms of barrels of oil equivalent per day (boepd). This production is mostly from mature fields with a high natural production decline rate, high water content and ageing facilities. This means that it is more expensive to keep the fields producing.
Upstream oil and gas activities are now moving to eastern Indonesia, which is geologically and technically more of a challenge, requiring greater levels exploration and higher production costs. Therefore, finding new resources and reserves will be a lot more challenging. On the other hand, due to democratisation and regional autonomy, the sector now has to deal with more stakeholders, who demand greater involvement in the business, as well as various fiscal and regulatory disincentives..
What has been the impact of low oil and gas prices?
SUNARYADI: The most significant impacts have been in revenue and investment. Net government entitlement dropped from $26.76bn in 2014 (with an average Indonesian Crude Price, ICP, of $95.57 per barrel) to $11.87bn in 2015 (with an average ICP of $49.21 per barrel). In 2016 we can only target $7.93bn for state revenue, based on the revised work programme and budget for the year. Upstream investment dropped from $20.4bn in 2014 to $14.9bn in 2015, a decline of over 35%. For 2016 we estimate that upstream investment will decrease to $12bn.
Due to the environment, some exploration and production companies have been forced to restructure their spending in order to survive. A number of projects are being cancelled or put on hold, rig counts have fallen, investment plans are being revised, costs are being cut, staff numbers have been reduced and new hiring has been put off.
In this challenging environment, we mostly focus on workover, well services, and maintenance optimisation in order to maintain production levels, rather than extensive drilling. However, from the production side of business, for the first time since 2008, our daily oil production has increased from 786,000 boepd in 2015 to 834 ,000 as of July 2016, an increase of 6.2%.
How can the government attract further investment and eliminate constricting regulations?
SUNARYADI: From a processing point of view, we must work faster and more efficiently. We need to simplify the permit process, engender certainty in land acquisition and make procurement easier. From an investment standpoint, it is important to eliminate disincentives by restructuring fiscal terms, and this could engender greater levels of interest from investors. Of course, this will mean that changes need to be made to production-sharing contracts. From an investment certainty viewpoint, there is a need to review existing regulations that may overlap and create restrictions for upstream activities – for example, Government Regulation No.79 of 2010 on Cost Recovery, which is one of the issues.
How do you assess the current training and development needs for the oil and gas workforce?
SUNARYADI: We pay close attention to human resource management for the upstream sector. This is especially true when it comes to strengthening the capabilities of our domestic employees. We have involved many stakeholders, such as universities and research centres, to improve the qualifications of native workers, and we hope that these qualifications will meet sectoral demand now and in the future.
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