Indonesia needs $6b to boost oil production to 1 million bpd

Norman Harsono
The Jakarta Post

Indonesia needs to raise at least US$6 billion in investment over the next 10 years to boost domestic oil production to 1 million barrels per day (bpd) by 2030 as targeted by the government, a business association has estimated.

“Hundreds of exploration wells need to be drilled,” John Karamoy, the chairman of the Oil and Gas Companies Association (Asper Miga) at an industry discussion in Jakarta on Oct. 10.

He said the estimate, which averages out at $600 million per year, was based on the assumption that Indonesia, as a mature oil and gas producing country, could find one oil discovery for every five drills.

“In other countries, it’s eight drills for one discovery. We’re a mature [oil producing] country, so the geography is quite well known,” he told The Jakarta Post.

Indonesia’s oil industry hit its peak during between the 1970’s and 1980’s, when oil production exceeded 1 million bpd and oil exports drove economic growth. But production has been steadily declining and was last recorded at 754,000 bpd in August this year, according to Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) data.

Sourcing the funds to achieve 1 million bpd production remains a major problem for the industry, said John.

Data from SKKMigas, which is the government agency that set the oil production target, shows that foreign and domestic investment into oil and gas exploration in Indonesia has been generally declining over the past five years.

Exploration investments consistently declined from $3.04 billion in 2013 to $567.5 million in 2017 before improving to $786.2 million last year.

Overall, annual investments in oil and gas exploration over the past five years averaged $1.48 million, which is still above the association’s estimate.

“The first step to make people invest in Indonesia is how we raise awareness that, out of 128 basins, only 54 basins have been explored and only 19 basins are operational. So there’s still a lot of potential,” said SKKMigas head Dwi Soetjipto, who is the former president director of state-owned energy holding company Pertamina.

For Asper Migas, a nationalistic organization whose vision is to make local oil and gas companies “the masters in their own country”, the ideal source of funding should be Indonesian banks. “If we fully rely on foreign companies for funding, they will own 100 percent of the industry. But if we are given a portion — say $1 billion to $2 billion out of the $6 billion — we can accept that. But where will that portion come from? It should be from within the country,” said John.

However, with only half of Indonesian adults owning a financial account, even banks have limited funding and thus, the association also focuses on facilitating cooperation between its members and state-owned enterprises, region-owned enterprises and the government.

The issue of limited exploration funding is not new and, as a result, the Finance Ministry and Energy and Mineral Resources Ministry have implemented several new policies over the past five years to encourage exploration.

Finance Ministry fiscal policy head Suahasil Nazara said that introducing tax incentives were his ministry’s main strategy to boost oil and gas exploration.

As an example, the ministry issued in August Finance Ministerial Regulation No. 122/2019 that exempts oil and gas companies from paying taxes on luxury goods (PPnBM) and value-added taxes (PPN) for exploration-related products.

Suahasil added that the ministry was working on allocating Rp 1 trillion ($70.48 million) from next year’s state budget to acquire foreign oil companies. “We of course need to follow it up in the 2020 state budget. We need to detail the exact mechanism. But what we want is to strengthen our crude oil supply for the future,” he said.

Meanwhile, the Energy and Mineral Resources Ministry's acting oil and gas director general, Djoko Siswanto, said at a separate discussion on Oct. 14 that his ministry’s main strategy to attract investment was slashing bureaucratic red tape.

“For permits related to the oil and gas industry, we have reduced 104 permits to six permits,” he said, adding that four permits were required in the downstream industry and only two applied to the upstream industry.