The ongoing plunge in oil prices has prompted companies working on oil and gas blocks in Indonesia to cut back on investment next year, prolonging weak spending in the sector at a time when the country needs to boost its oil output to avert a potential energy crisis.

The oil and gas contractors'€™ combined work plan and budget for next year will be approximately 13 percent lower than this year'€™s plan of US$25.6 billion, according to figures from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas).

'€œThe investment plan for 2015 is $22.2 billion,'€ SKKMigas deputy chief Johanes Widjonarko said recently. Meanwhile, investment realization in the oil and gas sector this year has already fallen short of expectations, with only $18.7 billion spent as of November, according to Johanes.

The government has called on contractors to step up exploration and to secure more reserves as Indonesia, a former member of the Organization of Petroleum Exporting Countries (OPEC), has been suffering from declining oil production as its fields are old and depleted.

Indonesia aims to book 818,000 barrels of oil per day (bpd) this year, while actual lifting remains below 800,000 bpd at present. For next year, the contractors'€™ combined work plan and budget showed that realistic lifting would stand at 850,000 bpd, lower than the proposed amount under the 2015 state budget of 900,000 bpd.

Exploring the country'€™s potentials has become increasingly difficult, particularly because a large proportion of untapped resources lie in the eastern part of the country, where geological conditions pose more challenges.

The cost of drilling an offshore well in a deep-water project can cost a company up to $200 million, with only a 10 percent chance of success.

Amid weakening oil prices '€”caused by the global oil glut over the US oil boom and reject the refusal of other major producers to cut output '€” the appetite to invest in the sector has decreased, as indicated by the Indonesian Petroleum Association'€™s (IPA) estimate that oil and gas firms operating in Indonesia might need to cut their capital expenditure (capex) by around 20 percent.

The benchmark Brent crude price for January settlement stood at $61.85 per barrel as of Saturday, according to figures from Bloomberg, the lowest level since July 2009. Meanwhile, the West Texas Index (WTI) for January delivery extended a drop to $57.81 per barrel, resulting in the lowest close since May 2009.

SKKMigas deputy for planning Aussie Gautama said the decline in oil prices would particularly affect new oil and gas projects in the country. However, he said, the declines would also result in a number of rigs going unused, which in turn would push down exploration costs.

'€œIf oil and gas firms have money saved from pending projects and see lower costs, they will take the opportunity to carry out more exploration. The question is whether Indonesia will be ready to tap this as we'€™re still working around several issues, including permit- and land-related problems,'€ Aussie said.

Prolonged bureaucratic processes have been blamed for hampering attempts to carry out exploration in the country.

Regulatory barriers, such as land and building taxes, also contributed to low realization of explorations works. In the last few years, the realization of investment has been lower than the planned budget.

The IPA estimates the country will become a net energy importer in 2019, when the government of Joko '€œJokowi'€ Widodo will end its term.

The country'€™s total energy demand is estimated to reach 6.1 million barrels of oil equivalent per day (boepd), while supply from oil, gas and coal will only be enough to support up to 6.04 million boepd. The gap between supply and demand will increase to 2.4 million boepd by 2025.

Meanwhile, for gas output, the contractors'€™ 2015 work plan and budget set a target of 6,592.06 million standard cubic feet per day (mmsfcd), lower than the state budget assumption of 6,989mmscfd.

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