It remains difficult for Indonesia to achieve oil production targets that are set by the Indonesian government. In fact, it is unlikely that Indonesia will meet this year’s revised oil lifting target of 818,000 barrels of oil per day (bpd) as set in the Revised 2014 State Budget. In the first half of 2014, Indonesia recorded an oil production rate of 797,000 bpd only. For almost two decades, Indonesia’s oil sector has been in a state of decline, evidenced by falling production rates, due to a lack of investments and aging oil fields.
Generally, the decline in Indonesia's oil production (lack of exploration) is often blamed on weak government management, bureaucracy, an unclear regulatory framework and legal uncertainty regarding contracts. Another reason why recent oil targets have not been achieved is that several oil blocks miss out on production targets due to various reasons (including technical problems or bad weather). For example, contrary to the initial target, the Cepu block in East Java cannot be fully operational in 2014. This block is expected to produce 165,000 bpd when fully operational (now expected in 2015).
Muliawam, a director for operations at SKKMigas (Indonesia’s oil and gas upstream regulator), added that the Bukit Tua oil field, which was supposed to start production (approximately 20,000 bpd) by November 2014 will be delayed until March next year due to construction troubles. The Bukit Tua field is part of the Ketapang block in East Java.
The Indonesian Finance Ministry said that for every 10,000 bpd shortfall, the country’s state budget deficit widens about IDR 1.9 trillion (USD $162.4 million). Such a shortfall is particularly problematic in times of weak state revenue generated by trading of other commodities (for example coal and crude palm oil).
Regarding oil production in the second half of 2014, most will depend on increased output at the Cepu block, operated by ExxonMobil. Production at this block will grow to 80,000 bpd by the year-end and (targeted) to reach 165,000 bpd in the second half of 2015.
If the Cepu block and Ketapang block will peak in 2015 as scheduled, then oil production of Indonesia can grow next year from this year’s expected figure of 810,000 bpd. Muliawan added that another 10,000 bpd are expected to originate from Pertamina’s enhanced oil recovery projects in 2015.
In 2013, Indonesia produced a total of 825,000 bpd. This is far from the country's oil production peak of 1.6 million bpd in 1995 during the Suharto regime.