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Companies need government support in oil recovery activities
Oil and gas companies want the government to provide incentives for oil-recovery activities, which are costly but have an important role in boosting the country’s declining oil production
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span>Oil and gas companies want the government to provide incentives for oil-recovery activities, which are costly but have an important role in boosting the country’s declining oil production.
Oil recovery is an alternative method for increasing oil production aside from exploration activities, it involves injecting chemicals into oil wells to push the remaining oil up from the reservoirs.
Pertamina EP (PEP), a subsidiary of state-owned energy holding company Pertamina has been implementing oil-recovery techniques since 2016, such as water-flooding and enhanced oil recovery (EOR).
Oil-recovery activities comprise three phases: primary, secondary and tertiary — the last one is what is known as EOR.
Water-flooding is the secondary phase, which employs water and gas injection, displacing the oil and driving it to the surface.
The EOR method involves flooding the wells with carbon dioxide (CO2) and other chemicals.
Various data show that although more expensive, EOR can increase production from a well to up to 75 percent recovery.
However, EOR is not really feasible in oil and gas fields with a low number of reserves, said John Simamora, Pertamina EP development director, in Jakarta recently.
In order to make it feasible, EOR should be conducted in oil and gas fields with reserves of around 300 million metric stock tank barrels (mmstb) to 700 mmstb.
“Besides that, conducting EOR won’t also be economically feasible if the global oil price slumps to US$30 per barrel. The safe level is at around $60-$70 per barrel,” he said.
He said the government should realize the importance of supporting recovery activities in order to improve oil production because seeking new oil and gas reservoirs was becoming more difficult.
“We need help to reach the production target [which is always set high by the government],” he said.
“The costs of conducting oil recovery are heavy and it needs a lot of time; that is why we only do it in [oil] fields that have massive reserves. We hope there will be an incentive for recovery activities.”
Andi Bachtiar, PEP vice president of EOR, voiced the same opinion that the lack of government incentives would make recovery activities unfeasible by 2020.
As Pertamina’s upstream subsidiary, PEP manages five assets comprising at least 21 oil and gas fields that are mostly mature. The latest average production from its fields reached 255,000 barrels of oil equivalent per day (boepd).
In 2018, PEP became the country’s third-biggest oil producer with an average oil production of 79,690 barrels of oil per day (bopd), 4 percent below its target of 83,000 bopd.
One of PEP’s EOR projects is the Polymer EOR at the Tanjung Field, South Kalimantan, with an estimated investment amounting to $116 million.
The EOR project will add $5 per barrel of oil equivalent (BOE) to the company’s initial operational cost for the field at $40 per BOE.
"It [the total $45 per BOE] is still lower than the current global oil price [at around $60-$70 per BOE], so we can still get a margin,” Andi said, adding that one of the extra costs was the purchase of chemicals.
When asked for a comment on the matter, Djoko Siswanto, director general of oil and gas at the Energy and Mineral Resources Ministry, denied that the government had yet to provide any support. He mentioned the gross split scheme as a form of incentive for oil and gas contractors.
“As stipulated in the [gross split] regulation, any EOR activities will be granted an additional 10 percent in split [of production],” he said in Jakarta recently.
Energy and Mineral Resources Ministerial Regulation No. 52/2017 on the gross split scheme sets the base split of oil production shared between the government and the contractor at 57 percent and 43 percent,
respectively.
John of PEP disagreed, saying that the gross split scheme would only make it difficult for oil and gas contractors to conduct EOR as investors would have to calculate whether their investments in recovery activities were worth the money. He pointed to the fact that the scheme omitted the chance for companies to obtain reimbursement from the government.
“It could be much harder [if it is calculated using the gross split scheme] as investors may think twice about conducting EOR if they know that the increased production from the method may not benefit them much,” he said.
In a recent interview with The Jakarta Post, global energy think tank Wood Mackenzie agreed that the government should provide specific incentives for EOR activities, not just relying on the additional split of shares in the oil and gas production.
“EOR is a long-term, high risk and costly activity. That’s why it need incentives, such as a certainty in long-term contracts in the [oil] block, additional split [of production share] and easier processes for the import of the chemicals,” said Johan Utama, the company’s analyst.
He said that after the oil price slumped to below $40 per barrel oil in 2016, oil companies tightened their budgets.
“The amount of [oil and gas] investment is smaller now, yet the number of countries that need it remains the same. So, they have to compete by beautifying their menus to obtain that limited money,” he said.
According to the think tank, the global capital spending for oil and gas development dropped 40 percent between 2014 and 2016 when oil prices were low. The price had only increased by 5 to 8 percent two years ago when the level was stable at around $60 to $70 per barrel oil.
“Hence, if this country really wants to boost its oil production, we do need EOR, but we should also understand that it’s not an easy or cheap process.” Johan added.
