Oil firms to spend $3.7b for drilling

Alfian, The Jakarta Post, JAKARTA | Mon, 08/31/2009 11:31 AM

Oil and gas contractors are expected to spend US$3.73 billion on drilling activities this year, 17 percent higher than in 2008, signaling intensified efforts to bolster the country’s oil and gas output.

“Of the total $12.94 billion investment planned to be spent by the contractors this year, $3.37 billion will be spent on drilling activities,” upstream oil and gas regulator BPMigas chairman R. Priyono said last week.

As the sector’s regulator, BPMigas has received business plans from oil and gas companies business for the year, including their investment projections.

Oil and gas companies’ actual spending for drilling activities last year was $2.89 billion, data from BPMigas shows.

Priyono said the increase in the drilling spending this year was because the contractors planned to drill more wells this year.

Last year, contractors drilled 901 wells, data from BPMigas shows, while for 2009, 1,273 wells will be drilled.

“Several smaller contractors may reduce their drilling activities due to the global financial crisis, but other contractors plan to drill more wells this year,” Priyono said.

He pointed out domestic drilling companies should be able to benefits from the intensified drilling activities.

Tito Kurniadi, chairman of the Indonesian Oil and Gas Drilling Association (APMI), said Indonesian drilling companies currently operated a total of 165 drilling rigs.

“We have a strong capacity for onshore drilling, but our capacity is still limited to offshore drilling,” he said.

Tito added the number of rigs operated by the association’s members might increase this year due to the higher drilling demand.

However, he pointed out, the domestic drilling companies might face financial challenges in trying to meet the increasing demand.

“In financing a project, banks require that the contract last at least five years,” he said.

“However, most drilling contracts between oil and gas contractors and us, the drilling companies, last only three years.”

In response, Priyono said BPMigas might in the future order oil and gas contractors operating in the same regions to make joint contracts for drilling procurements.

“Currently, drilling contracts are made between an oil and gas company and a drilling company,” he said.

“In the future, contractors operating in the same regions may make joint contracts for drilling service procurement.”

He added that under this system, drilling companies would secure order continuity for themselves.

“This will be safer for the drilling companies and also for the banks [that provide them with loans],”he said.

Priyono added any such joint contract would require strong coordination among APMI members.

Tito said the system was still being discussed.

“The point is, we and domestic banks will continue our synergy,” he said.

Asmawi, a director of Bank Rakyat Indonesia (BRI), said the investment in the drilling industry remained interesting to the bank.

“We see this as long-term investment, because drilling rigs aren’t just used once,” he said.

There are 231 oil and gas contractors currently operating in Indonesia, with 63 of them in the production stage.

As of Aug. 17, the total oil production by all contractors has reached 950,000 barrels of oil per day on average, or 99 percent of the production target set by the government.

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