Unlocking Growth in Indonesia’s Oil and Gas Industry

As one of the nation’s cornerstone sectors, the oil and gas industry is pivotal in driving economic progress and energy sustainability. However, there are challenges to navigate within the energy industry, especially for the future.

In this article, we will delve into the intricate landscape of Indonesia’s oil and gas industry, exploring key trends, opportunities, and challenges that shape its trajectory. 

Positive 2023 trend in Indonesia’s upstream oil & gas industry

Indonesia’s upstream oil and gas sector investment climate demonstrated a positive trend in the first half of 2023. Investment in that sector recorded a significant increase of 21%, reaching USD 5.7 billion from USD 4.7 billion in the same period last year.

The Chairman of the Upstream Oil and Gas Regulatory Task Force (SKK Migas) describes the growth as significant compared to the global oil and gas sector investment, which only grew by 5.4%.

By the end of 2023, investment is projected to reach USD 15.5 billion, reflecting a 28%  surge compared to the actual investment of USD 12.1 billion in 2022. If achieved, the investment for this year will mark the most substantial achievement over the past five years.

Efforts to improve the investment climate for oil and gas sectors

Indonesia still holds significant potential in oil and gas resources, particularly in the eastern part of the country. Geological data reveals the presence of many untapped oil and gas basins that offer exploration and exploitation opportunities.

However, the government acknowledges that Indonesia’s oil and gas industry competitiveness is lower than in other countries. Therefore, the government is enhancing the oil and gas sector’s investment sector by revising terms and conditions for offering working areas.

The initiatives aimed at improving terms and conditions for oil and gas working area auctions include:

• Improving the sharing split for the First Tranche Petroleum (FTP) by 10 percent shareable.
• Conducting an open bid for the signature bonus.
• Providing flexibility in the form of production-sharing contracts.
• Setting the Domestic Market Obligation (DMO) price at 100 percent of the Indonesian Crude Price (ICP).
• Eliminating the obligation to return a portion of the working area during the first three years.
• Removing the cost ceiling for Cost Recovery and facilitating access to data packages through a membership mechanism.

In addition, the government offers attractive profit-sharing for high-risk oil and gas working areas. In the case of gas, the profit-sharing can reach 50 percent for the government and 50 percent for the Contractor Cooperation Contract (Kontraktor Kontrak Kerja Sama/KKKS).

Foreign investors who aim to benefit from the government in the oil and gas sector can seek assistance from InCorp Indonesia for company registration services to ensure a smooth market entry process according to the applicable laws and regulations.

Read more: Fiscal Incentives for Oil and Gas Contractors in Indonesia

Addressing challenges in the industry

Indonesia’s oil and gas sector is facing some hurdles that hinder the sector’s growth. These problems are also challenging for the government in imposing the new regulations. 

1. Legal aspects

Investors are expecting improvements in the legal aspects, particularly concerning the revision of oil and gas laws. Revising these laws has been ongoing for over a decade and is crucial to creating a stable legal foundation for oil and gas sector investment in Indonesia.

2. Technical operational aspects

Well-drilling delays still hinder upstream oil and gas investment increase due to safety stand-downs, rig availability, and labor shortage. However, the global upward trend in the upstream oil and gas industry will continue to increase investment in Indonesia.

3. Declining production capacity

Indonesia has struggled to boost upstream oil and gas activities for several years. As per the Ministry of Energy and Mineral Resources data, investments in this sector soared to USD 20.72 billion in 2014 but fell to USD 10.17 billion in 2017.

As a result, production has consistently decreased, mainly due to aging wells and a need for discoveries. In June of this year, production was recorded at 615,500 barrels of oil per day (BOPD), 93% of the target, as per SKK Migas data. Gas production reached 5,308 million standard cubic feet per day (MMSCFD), accounting for 86% of the target.

The future outlook and potential

Deputy Chairman of SKK Migas, Nanang Abdul Manaf, revealed that the upstream oil and gas industry contributed approximately USD 6.8 billion or around IDR 100 trillion to the state’s revenues in the first half of 2023.

SKK Migas has set a goal of having 11 upstream oil and gas projects operational in 2023. These projects are expected to raise production capacity by 19,077 barrels of oil daily and 454 million standard cubic feet daily. 

These projects are projected to become operational during the third and fourth quarters of 2023, involving a total capital expenditure of USD 709.2 million.

Moreover, SKK Migas plans to host the Fourth International Convention on Indonesian Upstream Oil and Gas 2023 from September 20 to 22 in Bali, centered around “Advancing Security through Sustainable Oil and Gas Exploration and Development.”

This event is envisioned as a platform for all stakeholders to collectively shape policies and facilitate conditions that enhance exploration and production activities, stimulate investment growth, and improve energy resilience for economic growth.

Conclusion

The trend for investment in Indonesia’s upstream oil and gas sector seemed promising in the first half of 2023. The government also actively enhances industry capabilities by implementing several measures to streamline business procedures.

For foreign investors aiming to engage foreign specialists to bolster their investments in this field, it’s essential to consider acquiring an Indonesian Investor KITAS. 

InCorp Indonesia, with extensive experience in market entry, can help you obtain the necessary residency permit by relevant laws and regulations.  

Fill in the form below to leverage this opportunity within the thriving oil and gas sector.