Last year’s crude oil production of 794,000 bpd was well below the government’s oil lifting target in the 2014 State Budget (818,000 bpd), extending the downward spiral. In 2013, Southeast Asia’s largest economy produced 826,000 bpd, far from Indonesia’s peak production at 1.6 million bpd in 1995 during Suharto’s New Order regime. In those days, Indonesia was still a member of the Organization of Petroleum Exporting Countries (OPEC). However, after turning into a net oil importer, the country had to leave this organization in 2009. Currently, Indonesia imports roughly 350,000 bpd and 500,000 barrels of fuel per day to meet domestic demand. Primary reasons for the lack of investment in Indonesia’s oil sector are weak government management, bureaucracy, an unclear regulatory framework, corruption and legal uncertainty.

Indonesia’s Crude Oil Production (in thousand bpd):

In the first two months of 2015 Indonesia’s oil production continued to decline to an average of 790,000 bpd according to Muliawan, an official of SKK Migas (the Special Task Force for Upstream Oil and Gas Business Activities). However, starting from March crude oil production in Indonesia is expected to increase as the Bukit Tua oil field has become online, while output at the Cepu Block (also located in East Java) will increase from 40,000 bpd to 70,000 bpd. The Bukit Tua field now produces only about 3,500 bpd but this is expected to rise to 20,000 bpd by October 2015. Meanwhile, the Cepu Block is expected to reach its peak production rate by September of October this year. Last year, it was reported that this block has an estimated peak production level of 165,000 bpd.

However, although crude oil production in Indonesia is expected to rebound, oil revenues will remain limited due to current worldwide low oil prices. Amid this context, several oil & gas contractors in Indonesia have reduced their drilling activities. However, SKK Migas stated that these reduced drilling activities will not have a significant impact on this year’s oil production and therefore do not jeopardize the government’s oil output target of 825,000 bpd in the 2015 State Budget.

Indonesia’s total oil reserves are estimated at about four billion barrels, and it accounts for only 1.2 percent of the world’s total oil output. However, it is still a lucrative business. Before oil prices started to free-fall, 100 percent state-owned oil & gas firm Pertamina posted net profit of USD $3.06 billion in full-year 2013, hence being one of Indonesia’s most profitable companies. Pertamina is the second-largest oil producer in Indonesia after Chevron Pacific Indonesia.

Indonesian Oil Production and Income:

    Production     State Income
 2015¹   825,000 bpd   
 2014   794,000 bpd   
 2013   826,000 bpd    USD $31.3 billion
 2012   860,000 bpd    USD $33.5 billion
 2011   900,000 bpd    USD $35.9 billion
 2010   945,000 bpd    USD $26.5 billion
 2009   949,000 bpd    USD $20.0 billion

¹ government target
Source: Investor Daily