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Oil companies look to take advantage of high prices
Increased operating costs slow down recovery for some firms.
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A
n official at the Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas) has revealed that some energy companies were hunting for undiscovered oil and gas to seize the opportunity of surging prices, but experts say soaring costs — driven ironically by high energy prices — pose a challenge to boosting exploration.
Julius Wiratno, operations deputy of SKK Migas, said the task force was still implementing programs previously agreed on for this year. However, he noted that several oil and gas contractors had proposed additional work, including development drilling and workover or well services, to take advantage of rising oil prices.
“There are several contractors, for example Pertamina Hulu Energi. However, there are also those who [prefer to] wait and see, with various considerations [in mind],” he told The Jakarta Post on Monday without elaborating.
State-owned energy company Pertamina did not immediately respond to a request for comment.
“Rising prices will raise incentives to explore, but rising crude oil and gas prices will also have an [adverse] impact on the recovery of these companies. It looks like, in general, the recovery process is not happening soon enough for companies to [push for more] exploration,” Putra Adhiguna, an energy analyst with the Institute for Energy Economics and Financial Analysis (IEEFA), told the Post on Monday.
Concurring with Putra, Moshe Rizal, executive director of the Oil and Gas Companies Association (Aspermigas), said rising oil prices could push up costs for firms as they needed to use energy for their own operations, making it harder for them to increase exploration activities.
Read also: /business/2022/04/22/domestic-oil-output-15-short-of-target-in-q1.html" target="_blank">Domestic oil output 15% short of target in Q1
According to Wood Mackenzie, 798 appraisal and exploration wells were drilled last year worldwide. The consultancy noted that was about the same as a year earlier. It was also significantly less than what was drilled in 2019, at 1,256 wells.
French TotalEnergies, formerly Total, has been particularly active in drilling new oil wells. The French company drilled the newest exploration wells last year, according to Wood Mackenzie data reported by the Financial Times, with the United States' Exxon and Norway’s Equinor following in the list.
“Considering worldwide trends from 2020 to 2020, exploration activities are still relatively low compared to the pre-pandemic levels,” said the IEEFA’s Putra, adding that the current oil development trend varied across the world.
Despite the high price of oil, a survey by the Federal Reserve Bank of Dallas in the US, published in March, shows that 59 percent of US oil and gas executives are restraining growth due to capital discipline concerns, as many companies in the country have piled up large debts while investing in assets with poor returns in the years prior.
Read also: /business/2022/04/07/skk-migas-expects-12-upstream-oil-and-gas-projects-to-come-onstream-this-year.html" target="_blank">SKK Migas expects 12 upstream oil and gas projects to come onstream this year
SKK Migas’s Julius went on to say that the government would continue pushing for more oil and gas exploration, especially by reactivating wells and optimizing idle fields — which are considered more feasible ways to pursue production targets in the short term.
“So far, exploration activities are going according to plan, including geophysical and geological studies, two-dimensional and three-dimensional seismic surveying, as well as exploration drilling, which has progressed to around 12 wells from the target of 42 wells,” he said.
The government aims to push Indonesia's upstream production to 1 million barrels of oil per day (bopd) and 12,300 million standard cubic feet per day (mmscfd) of gas in 2030 to achieve energy independence. As of last year, ready-to-use production has reached 660,000 bopd and 5,501 mmscfd, according to SKK Migas data.
Exploration drilling in the first quarter reached 12 percent of the 42 wells targeted for 2022, SKK Migas data shows.
“Exploration is a long game, measures undertaken today will take years for the results to materialize. Rising oil prices will raise the incentive to explore, but the fundamental issues for Indonesia will remain to be commercial competitiveness and legal certainty,” said Putra.
