MINISTRY TO TERMINATE UNDER-PERFORMING CONTRACTORS
Jakarta, 30 Safar 1436/23 December 2014 (MINA) – The Energy and Mineral Resources Ministry will review the performance of numerous oil and gas contractors in the country and terminate the contracts of those that are failing to perform well.
The head of the ministry’s performance control unit, Widhyawan Prawiraatmadja, said the move was part of an attempt to control and encourage exploration activities in the country, which has been suffering from declining oil production.
“For example, if they fail to meet their commitments or if they do not take our suggestions, we will stop them,” Widhyawan said, The Jakartapost quoted Mi’raj Islamic News Agency (MINA) as reporting on Tuesday.
He added that the policy would also be applied to other sectors, such as that of independent power producers developing electricity projects.
“Therefore, the mechanism of bidding for oil and gas blocks must also be improved,” Widhyawan said, raising concerns over the country’s need to work with many more capable oil and gas companies.
Earlier this year, the Upstream Oil and Gas regulatory Task Force (SKKMigas) gave awards to 10 oil and gas contractors operating in the country that fulfilled their commitments and made technical discoveries of hydrocarbons. However, none were awarded the highest status of “gold category”, which refers to contractors that have met all commitments and made economic discoveries of hydrocarbons.
There are currently around 300 contractors working in oil and gas blocks in the country.
Indonesia, a former member of the Organization of Petroleum Exporting Countries (OPEC), has been trying to boost exploration work so that it will be able to secure more hydrocarbons to replace the production of currently depleted oil and gas fields.
Under a work plan and budget for next year, oil and gas contractors are planning to spend a total of US$22.20 billion on their investments, including on production, development and exploration work, according to the SKKMigas. The amount will be around 13 percent lower than this year’s plan of $25.60 billion.
The realization of investment plans has often gone down in the last few years. Critics have blamed prolonged permitting issues and unfriendly regulations in the oil and gas sector as the main causes of the declining exploration results.
Based on figures recently presented by the Indonesian Petroleum Association (IPA), exploration costs in Indonesia are the highest in Asia. However, the amount of discoveries only ranks third among 10 countries in the continent.
“The cost for drilling a well in Indonesia is 2.5 to three times higher, even compared to Yemen, which is struggling with conflicts,” IPA director Lukman Mahfoedz said.
Exploring the country’s oil and gas potential has been increasingly difficult, partly because of the challenging locations of the untapped resources in the frontier areas of the eastern part of the country, where geological conditions require contractors to expend considerable effort.
A contractor drilling an offshore well for a deep-water project in the country — mostly in the eastern areas — may need to disburse up to $200 million and can only hope for a 10 percent chance of success.
For this year, Indonesia is aiming to book 818,000 barrels of oil per day (bpd), although the current realization remains below 800,000 bpd. For next year, the contractors’ combined work plans and budgets show a target of 850,000 bpd, lower than the proposed amount under the 2015 state budget of 900,000 bpd.(T/P009/R03)
Mi’raj Islamic News Agency (MINA)
