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Oil, gas firms' appetite to invest 'weakening'
Oil and gas companies are losing their appetite to invest in Indonesia, thanks to a number of critical challenges that remain unsolved for years, according to a survey
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Oil and gas companies are losing their appetite to invest in Indonesia, thanks to a number of critical challenges that remain unsolved for years, according to a survey.
According to PricewaterhouseCoopers (PwC) Indonesia, which surveyed the executives of oil and gas firms representing 80 percent of the country's 2013 oil production, as many as 48 percent of respondents suggested their interest in further investing in Indonesia had declined.
The survey, released this month, also found 64 percent of respondents said the industry would need to spend more in the next five years on work in mature fields and on more difficult exploration activities, such as billion-dollar deepwater projects.
'The fact that industry participants still expect the need for capital to increase but at the same time almost half of the respondents are indicating weakening investment appetites for Indonesia, is a red flag for the Indonesian upstream sector,' the report said.
Upstream Oil And Gas Regulatory Special Task Force (SKKMigas) figures showed the amount of realized investment in the upstream sector was lower than the proposed amount, citing an example of 2013, when only US$19.3 billion of investment was realized, lower than the $23 billion planned.
The five most critical challenges according to the survey's participants were interference from other government agencies; contract sanctity; confusion in the roles of the central, provincial and regional governments; new regulations; uncertainty over cost recovery; and the audit findings of SKKMigas and the Development Finance Comptroller (BPKP). Companies considered that there were no significant efforts by the government to manage four of the five critical issues, which respondents also selected in the 2012 survey.
The government has been calling for more exploration to boost oil production to meet rising demand, but instead has been met by complaints from business players lamenting prolonged permission processes, among other obstacles.
Indonesian Petroleum Association (IPA) president Lukman Mahfoedz said he worried about future production, citing the 10 percent realization of drilling activities to find new hydrocarbon resources. 'The realization for exploration been only $2 billion to $3 billion per year in the last four years. For development projects, it's only $3 billion to $4 billion. We need more spending if we want to increase production,' he said.
PwC Indonesia's survey also showed that 24 percent of respondents said they had considered leaving the country.
The participants considered Norway, Australia, Malaysia, China, the US and the United Arab Emirates to be more competitive than others for oil and gas in terms of geological prospects, infrastructure, political stability and regulatory frameworks.
Indonesia, according to the respondents, was only more competitive than Nigeria, Venezuela and Angola in all of those matters, except for geological prospects.
Indonesia was also rated better than Thailand in terms of political stability but lagged in infrastructure and regulatory frameworks.
Erwin Maryoto, vice president for public and government affairs at ExxonMobil's subsidiary Mobil Cepu Ltd., said foreign oil and gas firms operating in Indonesia sometimes had to compete with their own sister firms elsewhere to ensure their parent company kept on disbursing funds for their Indonesian operations.
