The decision of the House of Representatives (DPR) Budget Board and the government to lower the cost recovery budget for oil and gas contractors in the draft revised 2016 State Budget will be a huge blow to upstream oil and gas activities. This decision could hinder the discovery of new oil and gas reserves and could ultimately result in a decline in state revenue.
Head of the Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) Amien Sunaryadi said if the cost recovery budget is too low, upstream oil and gas activities could decline. This would affect the country’s efforts to increase oil and gas reserves and maintain oil and gas lifting.“State revenue from the oil and gas sector would ultimately be at risk,” he told Katadata on Friday (17/6). Meanwhile, SKK Migas Deputy for Financial Control Parulian Sihotang was unwilling to speculate about the lowered cost recovery budget. He merely underlined that the government could delay cost recovery payments. “So we’ll see what the impact is when we’ve done recalculations with the contractors,” he said.
Meanwhile, SKK Migas Deputy for Financial Control Parulian Sihotang was unwilling to speculate about the lowered cost recovery budget. He merely underlined that the government could delay cost recovery payments. “So we’ll see what the impact is when we’ve done recalculations with the contractors,” he said.
Energi Pasir Hitam (Ephindo) President Director Sammy Hamzah said delayed cost recovery payments would differ from one contractor to another. However, the oil and gas firms are facing tough times. “I just want to reiterate that all (oil and gas) companies, without exception, are suffering from major losses due to falling crude prices,” he said. (Read: Profits Plunge due to Low Oil Prices)
The House’s Budget Board (Banggar) set the cost recovery budget at US$8 billion, or some IDR 107 trillion, in the draft revised 2016 State Budget, down 30 percent from the US$ 11.4 billion budget allocated in the 2016 State Budget.
Budget Board Head Kahar Muzakir said the cost recovery budget had been cut to US$8 billion in an effort to lower the state budget deficit.
Meanwhile, state revenue from the oil and gas sector is still below target, at just US$ 3.44 billion per May 31 2016, a far cry from the 2016 state budget target of US$ 12.3 billion.
(Read: Oil and Gas Revenue Slumps)
Drilling of exploration wells has also declined over the years. Data from the Ministry of Energy and Mineral Resources shows that 107 exploration wells were drilled in 2011, falling to 106 wells the following year, and then to 101 wells in 2013. The number continued to fall to a mere 83 wells in 2014 and 52 wells last year. As of 21 April this year, only 10 wells had been drilled.
The success ratio for discovering new reserves in Indonesia remains low. From 2011 to 2015, the ratio of drilling activities to discovered reserves was less than 30 percent. In 2011, the ratio was 32 percent while in 2015, the ratio slumped to just 29 percent.
As a result, domestic reserves of natural resources have been declining. During the first quarter of 2016, crude reserves amounted to 7,018 million stock tank barrels (mmstb), down from 7,305 mmstb the same period last year.
Gas reserves declined as well, from 151 trillion standard cubic feet (tscf) in the first quarter of 2015 to just 148 tscf in the same period this year. (Read: Oil Reserves Decline by Almost Four Percent due to Fewer Exploration Activities)
Oil lifting has also been below target. From the start of January to May this year, lifting amounted to just 808 barrels per day (bpd) compared with a target of 830 bpd. Meanwhile, gas lifting exceeded the target of 6,470 million standard cubic feet per day (mmsfcd), at 6,642 mmsfcd.
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