Low Oil Prices Can Cause Lower Oil Production in Indonesia
Although oil prices somewhat recovered from 12-year lows on Friday (08/01) on China's rebounding stock market there is concern that Indonesia will not achieve its 2016 oil lifting target as the country's oil producers become less eager to boost production rates amid unattractive oil prices. Yesterday, Brent oil fell to USD $32.16 per barrel - the lowest level since 2004 - after China devalued its yuan and Chinese stocks plunged over 7 percent causing the circuit-breaking mechanism to kick in and even causing a global stock selloff.
Oil prices recovered around 2 percent on Friday but concerns persist as output in the USA and in the OPEC member countries remains high while global growth in 2016 may be lower than previously assumed. On Thursday (07/01) the World Bank cut global GDP growth in 2016 to 2.9 percent (y/y) in its the January 2016 Global Economic Prospects from a growth forecast of 3.3 percent (y/y) in the June edition (last year the world economy expanded 2.4 percent y/y).
In the 2016 State Budget the Indonesian government targets an oil production rate of 830,040 barrels per day (bpd), up from last year's target of 825,000 bpd. However, according to a report of Indonesia's Finance Ministry the nation's oil output only reached 779,000 bpd last year. This poor performance was blamed on low global oil prices and on disruptions at the Cepu block (part of the Banyu Urip field) in East Java. Mobil Cepu Ltd, a subsidiary of Exxon Mobil Corporation and contractor for the Cepu block, only managed to produce 46,089 bpd last year or 61 percent of its 2015 target. This year the company targets a production rate of 168,430 bpd.
Read Analysis: Overview of Indonesia's Oil Sector
Indonesia's Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas), the country's upstream oil and gas regulator, is optimistic that Mobil Cepu Ltd can reach its production peak in March 2016. However, analysts expect to see more obstacles for the company in 2016 as it still does not have all necessary licenses, while the low oil prices do not make oil producers keen on producing much oil in the near-term.
Crude Oil Price:
Production Target per Oil & Gas Contractor in 2016:
| Oil & Gas Contractor |
Working Area |
2016 State Budget |
| Chevron Pacific Indonesia | Rokan | 247,950 |
| Mobil Cepu Ltd | Cepu | 161,120 |
| Pertamina EP | Indonesia | 104,420 |
| Total E&P Indonesia | Mahakam | 55,740 |
| PHE ONWJ Ltd | ONWJ | 40,520 |
| CNOOC S.E.S Ltd | S.E. Sumatra | 30,760 |
| ConocoPhillips Indonesia Inc Ltd | South Natuna Sea Block B | 17,050 |
| Petronas Carigali Ketapang | Ketapang | 19,140 |
| Chevron Indonesia Company | East Kalimantan | 17,590 |
| PetroChina International Jabung Ltd | Jabung | 12,600 |
| Virginia Indonesia Company (VICO) | Sanga-Sanga | 10,500 |
| BOB - BSP Pertamina Hulu | CPP | 11,420 |
| PHE WMO | West Madura | 12,270 |
| Sub Total 13 Largest Contractors | 741,080 | |
| Remaining 70 contractors | 88,960 | |
| Total Oil Lifting Indonesia | 830.040 |
Source: SKK Migas