Oil and Gas Sector Outlook

Severely hit due to low oil price

After the steep drop of oil prices since late 2014, oil and gas companies all over the world have been cutting back on expenditures and retrenching staff in 1Q15. Over the first three months of 2015, oil and gas companies announced drastic cost cutting plans in turn. As a result, most oil exploration projects have been postponed indefinitely and some ongoing projects were stopped. In Indonesia, oil companies initiated drastic cost reduction plans which led to postponement of projects and renegotiation of existing contracts, whilst some rigs that had been working were even terminated. Investment in the oil and gas sector this year will be 14% lower than initially planned, as low global oil prices force companies to reevaluate their spending in high risk areas.

Indonesia oil output higher due to Banyu Urip field

Despite the reduced investment and activity, SKK Migas estimated that Indonesia total oil production would touch 820,000 bopd, higher than the 825,000 bopd projected in the state budget. Additional production from Banyu Urip field at Cepu Block, which is expected to reach peak production later this year, will be the main driver of the higher output figure. Meanwhile, gas output is projected at 6,402 mmscfd, lower than 6,838 mmscfd estimated in the state budget.

No production cut from OPEC

Following OPEC’s decision not to cut production as its June 5, 2015 meeting in Vienna, oil prices should likely continue their descent that began in early May. Prices may fall into $50+ per barrel range since there is no tangible reason for their rise from January’s USD46 low. We expect the oil price will hover at USD63/barrel in 2016F.