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Falling oil prices. Impact on Indonesia upstream oil and gas and the country’s economy 1. Background How oil price drops Shale oil discovery Shale oil production more affordable and/or more user friendly technology? US oil reserve oversupply? OPEC not to decrease their oil production Relation with US economic growth? Indirect relation with USD value growth? China – India economic drops – lesser oil import Iran embargo sanction lifted Russia embargo? New progress on alternative energy source: wind, geothermal, clean coal gasification, nuclear, solar,,? Others Europeans to use gas more than oil ISIS sold cheap oil 2. Impact on oil and gas Indonesia – upstream Project holdback Project cancellation Exploration cost-cut Existing production facility efficiency improvement Personnel cut/ layoff Stricter project selectivity Cost effective procurement program Shifting to Gas Paradigm Decreasing profitability of Indonesia oil field Previous profit 70usd/bbl, current profit 10 usd/bbl Decreasing national earning from oil & gas sector Q2 2015 earning from oil and gas sector only achieve 46% from APBN target Deficit cash flow 3. Impact oil and gas Indonesia – midstream-downstream Cost effective procurement program Stricter project selectivity Benefit on the cheaper feedstock

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Page 1: Falling Oil Prices - Scratches Added

Falling oil prices. Impact on Indonesia upstream oil and gas and the country’s economy

1. Background How oil price drops Shale oil discovery Shale oil production more affordable and/or more user friendly technology? US oil reserve oversupply? OPEC not to decrease their oil production Relation with US economic growth? Indirect relation with USD value growth? China – India economic drops – lesser oil import Iran embargo sanction lifted Russia embargo? New progress on alternative energy source: wind, geothermal, clean coal gasification,

nuclear, solar,,? Others Europeans to use gas more than oil ISIS sold cheap oil

2. Impact on oil and gas Indonesia – upstream Project holdback Project cancellation Exploration cost-cut Existing production facility efficiency improvement Personnel cut/ layoff Stricter project selectivity Cost effective procurement program Shifting to Gas Paradigm Decreasing profitability of Indonesia oil field Previous profit 70usd/bbl, current

profit 10 usd/bbl Decreasing national earning from oil & gas sector Q2 2015 earning from oil and

gas sector only achieve 46% from APBN target Deficit cash flow

3. Impact oil and gas Indonesia – midstream-downstream Cost effective procurement program Stricter project selectivity Benefit on the cheaper feedstock New potentials on integrated refinery-petrochemical-energy New potentials on integrated gas prod- LNG-Petrochemical –energy

4. Indonesia’s policy-strategy due to falling oil prices Being more selective on oil and gas project More to oil and gas domestic allocation than to export..?? Focusing more on infrastructure development programs Increasing storage capacity of Crude Oil Re-injected crude oil Focusing on profitability of each oil & gas field Re-evaluation of production cost Secondary policies in utilization of gas i.e. : 40% of car/motorcycle production have

to be equipped with converter kit, source for 35000 MW power plant in Indonesia has to be fulfilled from upstream gas/sources, etc.

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Indonesia Upstream Crisis (In a brief)…. :

Description ChallengesOperational Performance Production continues to decline

Insufficient reserve replacement to support the long term production targets

Production has not been in optimal mode

EOR progress is not significant Unclear strategies on planning to

move C2, P2 to be P1 Lack of planning on how to

lengthen the R/P Accelerate new discoveries

Financial Performance Lower net profit margin Low cash ratio

High Production Costs for mature field

Lack of Proper Depreciation Management

Cost Recovery Management and economic has not been properly managed

Low Global Oil PriceRelated Expertise in Upstream Business

EOR Progress is not significant Unconventional HC potential has

not been proven yet Insufficient talent to support

operation & Production growth

Unclear strategy on EOR Development and Lack of EOR Expertise

Lack of synergy in partnership Reduce exploration risks in

unconventional by cooperating with focus, competent & efficient partner

Lack of planning on talent empowerment & recruitment

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How long the oil price will stay at this low level ??? Unpredictable…..

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Global Liquid Production Cost Curve

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Worldwide Upstream Crisis Responses