T

he decline in the country'€™s oil production will get worse this year as most oil and gas companies reduce their drilling amid the sharp drop in crude oil prices, the country'€™s oil and gas regulator has predicted.

Zikrullah, the deputy chief of the Upstream Oil and Gas Regulatory Task Force (SKKMigas) said on Monday that the average decline in the national oil production was expected to rise to 30 percent this year, from around 20 percent last year.

'€œThe main driver of the higher decline is the reduction in investment in well drilling and work-over. The impact will not only be seen this year, but also next year,'€ he said on the sidelines of a hearing with the House of Representatives Commission VII.

Most of the country'€™s currently producing fields are old so without any new drilling production will fall faster, according to Zikrullah.

Indonesia, which is trying to rejoin the Organization of Petroleum Exporting Countries (OPEC), has been struggling to deal with declining oil production as fields have matured and become over exploited.

The government has been encouraging more exploration to locate new sources of hydrocarbons. However, the current low oil price has forced companies to spend less money particularly in areas where risks are high and the bureaucracy is complicated.

The benchmark West Texas Intermediate (WTI) crude for July delivery traded at around US$59 per barrel on Monday, according to figures from Bloomberg. Meanwhile, Brent crude sold at $62 per barrel. Although the prices are higher compared to a few months ago, the current prices are still far below the more than $100 per barrel of early last year.

'€œSome companies, such as Pertamina, are more realistic because the spending on drilling will probably be higher than the revenue obtained from the old fields,'€ Zikrullah said.

Earlier, PT Pertamina EP, which is a subsidiary of oil and gas giant PT Pertamina and the operator of numerous fields in the country, said it was unlikely to meet its initial oil lifting target of 112,900 barrel per day (bopd). President director Rony Gunawan said the company'€™s current estimate of production was 108,600 bopd by year end.

'€œThere'€™s been a decline of around 4,000 barrels per day and our declining rate on old fields amounts to 20 percent,'€ Rony said.

This year, Pertamina plans to reduce its number of drillings by around 100 wells.

Total E&P Indonesie, the operator of the giant Mahakam block, also said it had revised down the number of drillings to 107 wells.

Next year, the company '€” whose contract to operate the Mahakam block will expire in 2017 '€” would only drill around 77 wells, the firm'€™s vice president for finance, human resources, general services and corporate communication, Arividya Noviyanto said last week.

This year, the country is expecting to see a total oil lift of 825,000 bopd, or around a half of the national demand of around 1.6 million bopd. Meanwhile, the gas lifting target is 1.22 million barrels of oil equivalent per day.

Despite the rapidly declining production rate, SKKMigas is upbeat that the lifting target will be achieved, thanks to the additional deliveries from new projects, particularly the Banyu Urip field at Cepu block.