Producers forecast decline in oil, natural gas production from Indonesia operations

PT Chevron Pacific Indonesia (CPI), already under government scrutiny for alleged violations of its cost recovery claims, has forecast that production from its concessions will decline due to aging fields and seasonal floods.

CPI President Suwitom Anggoro, during a hearing with the House of Representatives’ budget committee, said the firm’s Duri and Minas concessions in Sumatra might produce just 405,000 b/d this year, down from the 408,000 b/d target set by the government and the 425,000 b/d produced in 2007.

“The rainy season and potential flooding will probably exacerbate the decline,” said Anggoro, who predicted production eventually could drop to 382,000 b/d from the current 411,000 b/d due to natural decline. He gave no timetable for the projected decline.

CPI, which produces 40% of Indonesia’s total crude output, is one of several international oil companies summoned by the budget committee, which expressed determination to discover the reasons behind the country’s falling production of crude oil.

More oil revenues sought

Amid soaring prices on the international markets the Indonesian government wants to increase oil revenues and has estimated production will reach 977,000 b/d this year. In its proposed 2009 state budget, however, the government estimates that production will drop to 950,000 b/d.

The government is concerned at the potential loss of revenue due to the declining production of crude.

Anggito Abimanyu, head of fiscal policy for the finance ministry, said for every 10,000 b/d below target, the government will lose some $322.48 million in revenue based on the Indonesian crude price (ICP) of $100/bbl as established in the proposed state budget for 2009.

To determine reasons for the decline in production, the House also summoned PT ConocoPhillips Indonesia, state-owned PT Pertamina EP, PT Medco E&P Indonesia, and PT ExxonMobil Oil Indonesia.

Of the four companies, only Pertamina EP estimated it would produce more oil next year. Pertamina EP president director Tri Siwandono said, “In 2009, we are projecting to produce 125,000 b/d, about a 6% rise from 118,221 b/d this year.”

ConocoPhillips president director Jim Taylor said the company in 2009 might produce only 45,000 b/d, down from this year’s 80,000 b/d, while Medco director of production assets Budi Basuki said its oil output would drop slightly to 30,000 b/d in 2009 from 2008’s 33,400 b/d.

ExxonMobil representative Maman told the House that the firm would next year start producing some 20,000 b/d from its Cepu field.

Rama Pratama of the Prosperous Justice Party (PKS) questioned the effort undertaken by international oil companies in comparison with the Pertamina’s optimistic outlook. “What is the difference between Pertamina EP and the foreign companies?” asked Rama. He said, “I think the potential is still great.” Earlier this week, the House of Representatives inquiry committee on oil and gas management heard claims that a project run by CPI has allegedly cost the state up to $210 million in losses.

“If the project continues, losses to the state could reach up to $1.2 billion,” Supreme Audit Agency (BPK) official Udju Djuhaeri told the committee.

Since 2000, the CPI field in Rokan, Riau, has received extra power from a cogeneration installation operated by partner company PT Mandau Cipta Tenaga Nusantara (MCTN). The installation converts gas and feedwater into electricity and steam power. Under the country’s cost recovery mechanism, CPI can claim expenses from the government for electricity and steam for the cogeneration installation. But the BPK has alleged that irregularities in the project have resulted in state losses in the form of cost recovery payments.

Udju said the figure of $1.2 billion in state losses was based on the project’s long-term operations, which will run until CPI completes its contract to operate in Rokan in 2021.

Santi Manuhutu, CPI corporate communications manager, denied any wrongdoing, saying the electricity and steam processing fee paid by CPI to MCTN was “reasonable and competitive compared to similar projects in Indonesia and in the ASEAN region.”

Meanwhile, other firms have also been accused of financial irregularities.

ExxonMobil Oil Indonesia was said to be some $32.53 million in arrears for taxes, dividends and royalties, while the BPK also claimed that that in 2005 ConocoPhillips double-counted a $1.94 million investment credit that had been counted in the previous year.