Norman Harsono, Jakarta – Indonesia's top oil and gas company, state-owned Pertamina, will press on with a plan to increase production by 1.8 percent this year despite financial pressures from falling global crude oil prices.
Pertamina's upstream director Dharmawan Samsu said in a statement on Monday that the company "will strive to maintain oil and gas production levels as per our Work, Program and Budget [RKAP]", which pegs output at 923,000 barrels of oil equivalent per day (mboepd).
The state-owned company's production rate reached 919 mboepd during the first quarter, which is 1.4 percent higher than last year but 0.4 percent lower than the RKAP target.
Production growth was largely driven by the company's foreign operation, particularly in Algeria, which is managed by subsidiary Pertamina International EP (PIEP). The subsidiary contributed almost a third of first-quarter growth.
"Pertamina strives to maintain upstream investments in fulfilling national oil demand but with several adjustments based on our priorities to ensure project economics," said Dharmawan.
Pertamina adds to a list of Asian state-owned oil and gas companies, including Malaysia's Petronas and India's ONGC, that will commit to their existing work plans although falling global crude oil prices have threatened to derail financial expectations.
Crude prices fell about 30 percent on March 9 after the world's largest oil-exporting country, Saudi Arabia, slashed selling prices and set plans to increase crude production next month, effectively starting a price war between petroleum exporting countries under OPEC.
Indonesia's own benchmark Indonesian Crude Price (ICP) reached US$34.23 per barrel in March, down 39.5 percent from the previous month, due to the price war.
"Governments are looking to state-owned enterprises to maintain economic activity and employment, suggesting spending will continue as planned," writes Gavin Thompson of energy consultancy Wood Mackenzie Asia Pacific in a press note dated March 17.
He added that Pertamina's takeover of the Rokan Block in Riau – Indonesia's second most productive oil block – was "of more immediate concern" amid the price rout. The state-owned company is slated to take over the block, which is currently operated by the United States' Chevron, starting next year.
Pertamina is also investing $1 billion, nearly a quarter of the company's total 2020 upstream capital expenditure, in developing Indonesia's fourth-most productive oil block, the Mahakam Block in East Kalimantan.
"Any disruption to investment will have a significant impact on both corporate and national production," said Thompson.
Pertamina's oil and gas production targets account for nearly half of the country's projected domestic output at 1,946 mboepd this year.
Indonesia's Upstream Oil and Gas Special Regulatory Taskforce (SKK Migas) previously said it would coordinate with companies to ensure production levels remained in line with each company's RKAP.
"We will conduct technical and economic calculations to determine which programs will be a priority and which will be revisited without lowering RKAP targets," said SKK Migas deputy of operations Julius Wiratno.
Contrary to Pertamina, privately-owned PT Medco Energi Internasional, Indonesia's second-most productive homegrown oil producer behind Pertamina, slashed its capital expenditure and production targets for this year due to the oil price crash.
Capital expenditure was cut by 30 percent to $240 million "with potential for further 2021 reduction", while production was lowered by 5 percent to 105 mboepd. The company may further cut production by 5 mboepd if demand weakens.
In line with Medco's move, many oil and gas companies worldwide have cut upstream capital expenditure by 30 percent, writes Wood Mackenzie in a press note dated March 19.