Upstream Oil and Gas Investment in the First Semester Reaches Only 29% of Target

Low oil prices and changes to the upstream oil and gas industry's contract schemes have hampered investment. The government's shift from a cost recovery (reimbursement of operational costs) to a gross split scheme (operational costs are not reimbursed) requires investors to conduct more thorough calculations of oil and gas profit sharing.

SKK Migas data shows that upstream oil and gas investment in the first half of 2017 reached only US$3.98 billion (equivalent to Rp 52.9 trillion), or 29 percent of the US$13.8 billion target. Investment in exploitation blocks amounted to US$3.96 billion, and in exploration blocks, US$30 million. After peaking in 2013, upstream oil and gas investment has shown a downward trend, coinciding with the fall in global oil prices to below US$30 per barrel.

One reason for the decline in upstream oil and gas investment is the lack of interest in oil and gas block tenders since 2015. Of the 14 oil and gas blocks offered, none attracted investor interest. Similarly, in 2016, the offered tenders received no bids. In 2017, the government again offered 14 oil and gas blocks, but only one attracted investor interest.