Upstream oil and gas regulator BPMigas puts the blame on a regulation capping cost recovery payments for the country’s lower-than-targeted oil production figures this year.
The state budget sets the oil production target at 960,000 barrel oil per day (bopd), but, as of the
end of October, oil production achieved was only at 948,670 bopd, BPMigas’s chairman R. Priyono told the House of Representatives Commission VII overseeing energy and mining on Tuesday.
“There were many production obstacles occurring between March and September. There were unplanned shutdowns. I am concerned that this is a reaction to [the regulation] capping cost recovery payments resulting in [the contractors] holding back their maintenance spending,” Priyono said.
Data from BPMigas showed production figures for several contractors were far below target.
For example, the contractor Hess (Indonesia-Pangkah) Ltd. has so far only been able to produce 4,607 bopd or only 49.48 percent of the target set.
Another example is Kangean Energy Indonesia Ltd. The state budget expects Kangean to produce 9,000 bopd, but, as of October, the contractor was only able to produce 2,133 bopd or 23.69 percent of its target.
He added that unplanned shutdowns were estimated to have caused oil production losses of about 20,000 bopd.
“The unplanned shutdown phenomenon did not occur in the previous year. Thus, we assume that the contractors must have ignored the facilities maintenance,” he said, adding that this might be related to the cap on cost recovery payments.
The cost recovery scheme allows reimbursement from the government to oil and gas operators to compensate for spending carried out at the exploration stage.
The payment are made when the oil blocks are in production.
Earlier, the government paid all expenses claimed by the contractors. However, starting this year, the state budget caps cost recovery spending at about US$11.05 billion.
The capping amount will be determined annually. For next year, the government and the House have agreed to cap cost recovery at $12 billion.
“For next year, I have warned the contractors that they cannot cut spending for operation, maintenance, and capital expenditure. But, I think in future our exploration activities will drop significantly. In the next five years, we will face shortages in oil reserves,” said Priyono, adding that the regulation capping cost recovery payment should be re-evaluated.
Commenting on the issue, energy analysy Pri Agung Rakhmanto said Priyono’s remarks did not make any sense, as the cap did not actually comprise a strict restriction as the unpaid costs could be carried over to the following years.
Still, Pri Agung said that the capped figures were however “not realistic in the first place.”
For next year, the cost recovery has been capped at $12 billion.
