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Oil and gas firms struggling amid declining oil prices

As the global oil price heads downward, oil and gas companies in the country are trying to stay in the business by making several adjustments particularly in their non-operational spending

Raras Cahyafitri (The Jakarta Post)
Jakarta
Thu, August 6, 2015

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Oil and gas firms struggling amid declining oil prices

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s the global oil price heads downward, oil and gas companies in the country are trying to stay in the business by making several adjustments particularly in their non-operational spending.

The Energy and Mineral Resources Ministry'€™s director for upstream oil and gas, Djoko Siswanto, said oil and gas companies in the country were relatively '€œfine'€ with none of them going to be bankrupt anytime soon.

'€œHowever, in terms of their budgets, they have adjusted and postponed high-cost programs. There are contracts that have been postponed, resulting in the reduction of sub-contracting business,'€ Djoko said.

He added that some companies have also adjusted their employees'€™ salaries and reduced leasing costs.

The benchmark Brent crude for September delivery was at US$50.29 per barrel as of 1.:20 p.m. Tuesday on the ICE Futures Europe exchange, according to figures from Bloomberg. The contract dropped to $49.52 per barrel on Monday, the lowest close since January.

Meanwhile, another benchmark, the West Texas Intermediate (WTI), was at $45.9 per barrel on Tuesday on the New York Mercantile Exchange, Bloomberg figures showed. It also dropped as low as $45.17 a day earlier, the lowest point since March.

The low oil price is mainly driven by the global supply glut, following the shale oil boom in the US. The global oil supply could even increase further as the oil embargo on Iran is lifted following the Iran nuclear deal. Many are concerned that oil flow from Iran will increase the supply and in turn push the price down further.

The Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) spokesperson, Elan Biantoro, said oil and gas contractors in the country were anxious as the global oil price kept declining. The oil price inched up around March this year before it dropped again recently.

'€œWhen the price started to drop earlier this year, we and contractors worked to revise down our budgets. Given the recent further price decline, we have to think hard about how to deal with the new situation as we cannot make another revision in the budget because it will take time, as well as affect the state income,'€ Elan said.

He added that under a previous revision, oil and gas companies had been cutting down their programs, particularly those that have no impact on revenue. The scope of works performed by subcontractors has been adjusted down by around 10 percent, according to Elan.

'€œThere are reductions in the number of subcontractors workers due to narrower works. However, permanent works stay. Some turbulences emerged, such as in ConocoPhillips and Vico, but they can be handled through dialogue with the workers,'€ Elan said.

Energy and Mineral Resources Minister Sudirman Said said there were no particular moves to support oil and gas companies in the country amid weakening oil price other than supports in the issuance of regulation and permission to improve business efficiency.

The Ministry recently handed over several business licensing processes in oil and gas business to the Investment Coordinating Board (BKPM). However, some processes have stayed in the Energy and Mineral Resources Ministry due to the complexity of the oil and gas issue.

Lukman Mahfoedz, the president director of PT Medco Energi Internasional, said oil and gas companies regularly coped with crises over low oil price.

'€œThis is not the first time that we have a low price. This is a new period that should make us more creative and lower costs. However, we need support from the government,'€ he said.

'€œThe licensing process is an important thing. Thus, authority related to oil and gas should be centered at the Energy and Mineral Resources Ministry. So far, various policies from different ministries have impacted the industry, such as tax which is under the Finance Ministry. We spent so much time with other ministries,'€ Lukman added.

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