google.com, pub-9591068673925608, DIRECT, f08c47fec0942fa0 Balance between production and cost recovery a struggle - MEDIA MONITORING OIL AND GAS -->

Monday, April 10, 2017

Balance between production and cost recovery a struggle



Meeting the government’s target of oil and gas production, which is essential to fulfill the country’s growing thirst for energy and minimize imports, is no easy feat given the limited budget and aging wells. The Upstream Oil and Gas Regulatory Special Task Force (SKK Migas) has approved 59,013 exploitation and exploration activities proposed by contractors for this year’s work plan and budget, which is intended to increase reserves and maintain production levels.

While only 7.7 percent of the approved exploitation and exploration activities have been conducted by the end of February, the government has shelled out US$2.4 billion - or 22.9 percent of the annual cost recovery budget in the first quarter ofthe year.

It is unlikely that the contractors will be able to check off all the activities, as the budget for cost recovery the government’s reimbursement scheme for exploration and exploitation activities has been cut in the 2017 state budget to $10.5 billion from the initially proposed $11.5 billion.

“If the cost recovery has been cut, then we will also have to cut down on our activities. With the current state of oil prices, we will have to prioritize activities that can boost production, such as well maintenance and workovers,” SKKMigas secretary Budi Agustyono said recently.

To offset the cost recovery burden, the government recently announced a gross-split sliding scale, in which the profit split is determined from the get-go and the Will no longer reimburse any exploration or exploitation expenses, on new contracts.

Even as the government pins its hopes on the gross-split scheme, the cost recovery scheme is not going anywhere anytime soon, as there are still dozens of contracts operating under cost recovery that will not expire within the next decade.

This year’s state budget targets ready-to-sell production, also known as lifting, of 1.9 million barrels of oil equivalent per day (boepd), comprising of 815,000 barrels of oil per day (bopd) and 6,440 million metric standard cubic feet of gas per day (mmscfd). While the gas lifting target has largely been met in the first quarter, oil lifting has fallen short of its target with only 787,800 bopd.

The Energy and Mineral Resources Ministry is working on a new regulation that may compel new contracts for existing fields to include proposals of enhanced oil recovery (EOR) activities to squeeze out every last drop of oil. Oil and gas director general IGN Wiratmaja Puja said the ministry was still evaluating the possible incentives it could offer contractors to increase their enthusiasm for EOR activities. He cited an increase in the profit split for the contractors as a possible incentive.

“We want [the contractors] to already have plans for future EOR activities in the field when they submit their proposals,” he said recently adding that EOR at 34 priority fields could help boost lifting to around 600,000 bopd by 2030. 

     Based on current conditions, many believe lndonesia’s oil reserves will be depleted in little over a decade if the country keeps its lifting rate above 800,000 bopd without any new discoveries. Furthermore, lifting could drop to below' 400,000 bopd within the next decade.

Jakarta Post, Page-13, Monday, April, 10, 2017

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