Regulator to end 18 contracts this year, expects production decline

The Jakarta Post, Jakarta | Business | Tue, March 26 2013, 12:24 PM

The country’s oil and gas regulatory task force SKKMigas will this year terminate the contracts of 18 companies in a move that will also serve as a strong warning for other mining firms operating in the archipelago.

“We are ending their contracts because they have failed to meet their commitment. But we are taking this firm action to motivate other companies rather than punishing the ones [whose contracts are being terminated],” the agency chief Rudi Rubiandini said in a discussion organized by the Indonesian Association for Petroleum Engineers (IATMI) in Jakarta on Monday.

Rudi said that the companies whose contracts will be terminated are among 119 contractors that have been through a 3-year exploration phase. Among the total figure, 42 contractors have fulfilled their commitment, 54 are still in process and 5 are yet to meet their commitments.

“There are various conditions that might have hindered these contractors from complying with their contracts, from a financial problem to land problems,” he explained, adding that termination of contracts between 2002 and 2012 have led to a total sunk cost of US$ 1.3 billion.

Rudi refused to disclose the firms whose contracts will be terminated. He, however, said that one of those companies was US-based Hess.

Earlier this year, US-based ExxonMobil, US-based Marathon, US-based Hess and Netherlands-based Tately NV decided to return their blocks in the Makassar Strait to the Indonesian government after deeming the basins uneconomic.

Speaking about the decline of gas production, Rudi said it had been an issue lingering in the country’s oil sector for years, with 2012 seeing production slip down by 6 percent compared to the previous year, with average annual decline at 3.5
percent. Last year, the country produced only around 860,000 barrels per day (bpd) of oil, a significant decrease from the original target of 930,000 (bpd) as specified in the 2012 state budget, despite having drilled 840 development wells and worked over 740 existing wells.

The country has made no significant progress in finding new oil reserves over recent years, and Rudi said that only 80 new wells were discovered last year, far below the annual target of 250 wells with only 51 turning out to be promising – the same trend as in previous years.

Despite the apparent decline, the government assumed oil lifting (net production) at 900,000 bpd in the 2013 state budget and has targeted inclining production and reaching a million bpd of oil by 2014.

Rudi said that to actually meet the 2014 targets, the government should consider lowering this year’s state budget assumption — to make it more reasonable — and go for zero-decline production.

Therefore, Rudi said, SKKMigas has proposed to adjust the target to around 840,000 bpd, which he expected to be included in the revised state budget.

“If we want to see an inclining production after declining trends in recent years, we have to at least reach a zero decline first. To meet the target and generate one million bpd in 2014, we have to keep oil production this year above 840,000 bpd,” he said, adding that ExxonMobil’s Cepu block in East Java,
which is projected to generate an additional 165,000 bpd for Indonesia by the end of 2014, would cover the rest. (aml)

http://www.thejakartapost.com/news/2013/03/26/regulator-end-18-contracts-year-expects-production-decline.html

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