The appetite for Indonesia’s oil and gas assets remains thin despite the introduction of a new scheme to boost investor interest earlier this year, as global crude prices are yet to recover from their two-year slump.
The gross-split scheme is expected to help counter the current low oil prices through a mechanism with which the profit distribution between the government and contractors with a production-sharing contract (PSC) will slide up and down according to specific factors. These include an extra 5 percent for the contractor share whenever the Indonesian crude price (ICP) remains between US$40 to $55 per barrel.
The Energy and Mineral Resources Ministry is prepping several conventional and unconventional oil and gas fields to be put up for auction this year under the new gross-split sliding scale in hopes that it will compensate for the lack of bids from investors in the past few years.
However, investors remain uncertain about the feasibility of the gross-split scheme and are apparently adopting a “wait and see” attitude while the Offshore North-west Java (ONWJ) progresses. The ONWJ is set to be the first oil and gas field whose contract will be renewed under the new mechanism. Indonesia Petroleum Association executive director Mariolijn Wajong said oil and gas players would be taking into account global crude prices when considering whether to bid on the fields in the upcoming tender.
“The continuously low oil prices have increased competition in determining who will get investments because there is a shortage of capital across the globe. We hope that the blocks on offer will be able to compete with investments abroad,” she recently told The Jakarta Post. “We’ll just have to wait and see the results.”
Global crude oil prices hit an all-year low on Friday with West Texas Intermediate (WTI) trading at $49.63 per barrel, while fellow benchmark Brent also traded at $52.50. Many analysts had been optimistic that crude oil prices might eventually hit $55 per barrel this year after OPEC announced last November that its members would cut production by about 1.2 million barrels of oil per day (bopd), while non-members of the oil cartel would slash output by around 600,000 bopd.
However, Fitch Ratings has predicted that the recovery in US drilling activity will drive up shale oil production in the second half of 2017, offsetting some of the oil price gains in . January and February. Consequently the average oil price for the rest of the year may be lower than in the first two months, which hovered between $53 and $57 per barrel.
Despite the government’s optimism about the effectiveness of the gross-split scheme in luring investors in times of low crude prices, some business players are doubtful. The Indonesian Employers Association (Apindo) energy and mineral resources chairman, Sammy Hamzah, said the new scheme raised questions about sunk costs of production fields that previously could be reimbursed through the current cost recovery scheme.
Although the new gross-split scheme allowed the energy and mineral resources minister to reward an additional 5 percent to contractors based on his discretion, it would not be enough, Sammy said.
“For example, my company [Ephindo Energy Private Ltd.] has seven PSCs for coal bed methane [CBM] fields. What will happen to the sunk costs? Will they just disappear or will they be carried over to the new contract, and in what form‘?” he said. “One of my contracts has sunk costs up to $ 30 million, which means it is unlikely that the 5 percent will cover it, 'especially since CBM has low rates of production.”
Investors would likely be more enthusiastic if they were given an option to sign new contracts under the gross-split scheme or cost recovery, which would also enable the government to test out its new method, he added.
Jakarta Post, Page-14, Saturday, March, 11, 2017
No comments:
Post a Comment