A government upstream oil and gas agency has caved in to global economic pressures, revising down Indonesia’s production and earnings as first quarter production falls 9.6 percent below target.
The Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas) announced a 4 percent cut to production on Thursday to 725,000 barrels of oil per day (mbopd) this year from the initial target of 755,000 mbopd.
SKK Migas also cut the gas production target by 14.2 percent to 5,727 million metric standard cubic feet per day (mmscfd) from 6,670 mmscfd.
“We are dealing with falling oil prices and a weak rupiah,” said SKK Migas head Dwi Soetjipto in a video conference about the industry’s first-quarter performance. “We are also struggling to tackle the spread of COVID-19.”
Many such companies face lower productivity, delivery delays and slower mobilization times due to coronavirus emergency measures, all which were implemented to curb the spread of COVID-19 in Southeast Asia’s hardest-hit country in terms of reported fatalities.
“We are looking for ways out so that changes don’t turn out that big,” added Dwi.
His statement signals that SKK Migas has backtracked from a previous commitment “to ensure production targets are not affected by falling prices” – a commitment announced on the eve of an oil price crash on March 9. The world's economic outlook has spiraled since that day.
Indonesia’s Finance Ministry has revised down the country’s economic growth projection to 2.3 percent, the lowest since 1999, and many multinational oil and gas companies, including major investors in Indonesia such as Medco Energi, ExxonMobil and BP, have slashed their annual capital expenditure plans by about 30 percent.
SKK Migas expects upstream oil and gas revenue to be 38 percent lower than expected at US$19.96 billion, assuming that the Indonesian Crude Price (ICP) – as projected by the Finance Ministry – averages $38 per barrel this year. The ICP was last recorded at $34.23 per barrel in March.
Due to falling revenue, Indonesia’s non-tax state revenue from the oil and gas industry is projected to reach only $6.7 billion, 53.7 percent lower than initial expectations.
SKK Migas plans to lobby the government and regional administrations to introduce a fiscal stimulus and cut bureaucratic red tape for upstream oil and gas companies respectively.
Despite the lost income, SKK Migas deputy for business development Sulistya Hastuti Wahyu said oil and gas companies had not furloughed employees.
“So far, there have been no requests sent to SKK Migas from oil and gas companies to terminate employment (PHK) in relation to COVID-19” he said.
The oil and gas industry, which is a major contributor to Indonesia’s non-tax state revenue, has an advantage over most other industries as it is exempt from mandatory workplace closure under large-scale social restrictions (PSBB).
SKK Migas said Indonesia’s first quarter oil and gas ready-to-use production, also known as lifting, was 1,749 mboepd, which is 90.4 percent of the state budget target.
Taskforce data shows that, out of the top 15 oil producers, Jakarta-based Medco EP Natuna exceeded its target by the widest margin (117.6 percent) while Kuala Lumpur-based Petronas Carigali fell below its target by the widest margin (71.4 percent). The former produced 15.08 mbopd and the latter 9.19 mbopd.
Out of the top 15 gas producers, London-based Premier Oil exceeded its target by the widest margin (111.2 percent) while Jakarta-based Pertamina Hulu Energi Jambi Merang missed its target the widest margin (72.1 percent). The former produced 239 mmscfd and the latter 94 mmscfd.