ENERGY NEWS

Indonesia Crude Oil Production Drops 
in 2002

Summary.  Indonesian crude oil production dropped nearly 7 percent in 2002. Almost all oil producers reported declines, except for ExxonMobil and Exspan. The Chinese became important industry players in 2002, becoming the second largest producer after Caltex and accounting for more than 12 percent of all Indonesian production. Continued sluggish investment and a decrease in new exploration were key factors behind the decline. The GOI will need to fix systemic problems in the industry in order to reverse this declining production trend. End summary.

Indonesia produced an average of 1.251 million barrels of oil per day (BOPD) in 2002, down 6.9 percent from the previous year's average of 1.340 million BOPD. The Energy Ministry reported that crude oil accounted for 1.119 million BOPD of the total, while condensate production averaged 132,400 BOPD. On a monthly basis, crude and condensate production declined from 1.315 million BOPD in January to 1.181 million BOPD in December 2002.

Chinese Firms Enter Picture as Others Report Declines

3. Most of Indonesia's major oil producers reported declines (see table). Caltex Pacific Indonesia's (CPI) production dropped 10.2 percent, in large part due to the loss of its CPP block to the Siak regional government in August 2002. CPI now accounts for 44 percent of the country's crude oil production. Pertamina's production dropped 8.3 percent, due to steady declines in its matured and depleted fields in South Sumatra and Kalimantan. In contrast, national oil company Exspan reported a 3.6 percent increase in production, due to strong performance from its Rimau oil block in South Sumatra. China's increased presence is another significant change to the oil production picture. Chinese energy firms now account for over 12 percent of Indonesia's daily output, thanks to the acquisitions of Repsol-YPF and Devon in 2002 by Chinese state companies China National Offshore Oil Corporation (CNOOC) and Petrochina.

Crude and Condensate Production by Company

The following shows crude and condensate production by company (in thousands BOPD):

Notes:
* ConocoPhilips figures include its subsidiary Gulf Resources, acquired in 2001.
** ExxonMobil 2001 figures lower than normal due to a four month production shutdown in Aceh for security concerns. 
*** PT Bumi Siak is the regional government-owned company that acquired the Caltex Pacific Indonesia CPP block in August 2002. Figures reflect Aug-Dec 2002.

Exploration and Investment are Down

Key factors in Indonesia's declining oil production have been continued decreases in new exploration and sluggish investment. More than 80 percent of the country's commercial reserves comes from oil blocks signed before 1971. Blocks signed after 1990 account for only five percent of oil reserves. Declining new investment contributes to the country's dependence on its aging oil blocks. Oil and gas spending, including exploration, development and production, has declined from a high of USD 4.8 billion in 1998 to 3.4 billion in 2002. Oil and gas investment in Indonesia is currently at its lowest level since 1995.

New Oil Blocks Have Attracted Little Interest

Investors seem to have little interest in acquiring new blocks. After a peak of 28 new contracts in 1997, the government signed eight contracts in 2001 and only one new contract in 2002. On February 1, the GOI formally tendered 11 new oil exploration contracts for production sharing deals in four provinces. Industry contacts told us the new oil blocks are more attractive than in the last couple of years, particularly the seven offshore blocks in East Java (in part because of the increased security risks associated with onshore blocks). However, any significant increase in new investment is unlikely, they cautioned, as long as systemic problems, such as contract sanctity, fiscal transparency and security, remain (reftel provides details on oil/gas industry concerns).

Comment

Most observers agree that oil production will continue to decline until the GOI's investment climate improves. Foreign oil companies have an increasingly tough time convincing their corporate headquarters that scarce capital should come to Indonesia. Prolonged negotiations over extending existing contracts, such as the ExxonMobil Cepu oil block with its potential 250,000 BOPD, do little to encourage investors. China is an exception to the rule, illustrating that country may have different risk versus reward views, or does not face the same constraints as other international investors. But for now, most major international oil companies will shy away from large investments and focus on improving the production (and cash flow) of their existing assets.

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