A

s world prices continue to plunge, oil-and-gas companies operating in Indonesia are expected to further lower spending next year amid a slowdown in exploration activities.

Spokesperson for the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) spokesperson Elan Biantoro said oil-and-gas capital spending would range between US$16.14 billion and $17.68 billion next year, lower from this year'€™s initial investment plan of $22 billion.

Currently, the task force and contractors are finalizing the work plan and budget for next year.

'€œThe protracted pressure on global oil prices is the main cause for the lower capital spending plan. Companies have to recalculate their investment and keep working only on priority activities,'€ Elan said.

Market glut driven by the boom in shale oil development extended its pressure on global oil prices and therefore dealt a severe blow to firms. Global oil prices are currently less than a half of the price level recorded early last year. The bearish price outlook is also expected to continue after last week'€™s OPEC meeting in Vienna, Austria, concluded that the group, which produces a third of global oil supply, would keep pumping at the current level of approximately 31.5 million barrels per day.

Elan added that exploration activities would also be significantly reduced as only 26 exploration wells had been proposed for next year as compared to this year'€™s plan of 184 wells.

Indonesia, which recently re-joined OPEC, has suffered from declining oil production as its oil fields have depleted. The government is calling on companies to expand exploration to secure hydrocarbons for future use. However, such exploration is hampered by several hurdles, including red tape.

Next year, state-owned oil-and-gas firm PT Pertamina has said that it would drill a total of 34 exploration wells, comprising four wells in overseas fields and 30 wells in domestic fields. In addition, there the company will drill 149 development wells, of which 112 wells will be located in Indonesia.

To support the projects, Pertamina will disburse a total of $3.81 billion in investment next year, both for its domestic and overseas fields.

'€œOut of the total, as much as $2.61 billion will be allocated for domestic assets,'€ Pertamina'€™s upstream director Syamsu Alam said.

Meanwhile, the Pertamina Hulu Energi Offshore North West Java (PHE ONWJ), which is owned by Pertamina, will disburse around $135 million in investment next year. Some part of the fund will be used to drill three development wells and five work-over wells, according to its spokesperson Donna Apriadi.

A similar view on the slowdown in exploration activities is shared by Andrew Harwood, Wood Mackenzie'€™s upstream oil-and-gas senior research manager for South and Southeast Asia.

Harwood said reduced exploration activities would linger in 2016 amid the deferral of investment decisions on projects such as Ande Lumut, Tangguh LNG expansion, Indonesia Deepwater Development (IDD) and Abadi field of the Masela block.

Harwood said Indonesia had averaged around 70 exploration and appraisal wells per year during the 2010 to 2014 period.

For 2015, the think tank estimated that less than 25 exploration wells would be completed, with activity set to fall further in 2016.

Harwood estimated Indonesia'€™s output from oil-and-gas fields, either those on-stream or currently under development, would hit 2 million barrels of oil equivalent per day (boepd) in 2016 and that by 2020, production would fall by 20 percent to around 1.6 million boepd.

'€œHowever, with 15 percent of production in 2020 set to come from fields that have not yet been sanctioned, further deferrals in investment decisions could see 2020 production fall to as low as 1.4 million boepd. This would reflect a 31 percent decline from 2016 levels, in just five years,'€ Harwood said.

Therefore, the medium-term oil-and-gas supply outlook for Indonesia would remain uncertain, Harwood warned.

Wood Mackenzie earlier reduced its estimate for 2015/2016 global upstream capital spending by $276 billion. Such a figure is 23 percent lower compared to its forecast 12 months ago.

Meanwhile, Total E&P Indonesie, the operator of the Mahakam block, the country'€™s biggest gas producing block, will significantly lower its investment next year.

An executive with the company, Arividya Noviyanto, said his firm would spend $1.1 billion next year, lower than the estimated realization of this year'€™s investment plan of $1.97 billion.

Pertamina will take over from Total E&P Indonesie in running the Mahakam block in 2017.

Separately, the Indonesian Petroleum Association'€™s (IPA) director, Sammy Hamzah, said companies should prepare themselves for a prolonged period of low oil prices.

Sammy said the massive layoffs might be inevitable, especially to companies engaged in exploration.

Gunawan Sutadiwiria, deputy for planning at SKKMigas, said companies, particularly those that were subsidiaries of multinational corporations, would have to compete with their sister companies operating in other countries.

They would have to ensure the parent firms that Indonesian fields could meet economies of scale before the parent firms approved their activities.

'€œIndonesia is actually competing with other countries [where the companies also have investments]. If [they deem] production in Indonesia uncompetitive, they will pull the plug [on supporting Indonesian subsidiaries],'€ Gunawan said.