Managing Non-Technical Risk in Upstream Oil and Gas Industry in Indonesia

Abstract

Summary In the last decade, volatility of oil prices has increased rapidly. Dealing with high default risk conditions, increased volatility and a downward trend in oil prices since 2015, oil and gas companies are advised to hold on to the mantra of capital discipline (cost reduction, standardization, collaboration) and refocus investment and efforts on asset maintenance. On the other hand, the oil and gas industry in Indonesia is one of the source of state revenues and as a provider of basic energy needs for economic growth. The decrease in upstream oil and gas investment is a bad signal for the country's budget and energy in the future. Declining production levels (marginal fields and no significant new discoveries) are the main causes of this problem. Oil imports as a solution to the deficit is a poor signal both national energy security and exchange rate stability. For this reason, the Indonesian government needs giant discoveries as one of the solutions for the above problems. With all above reason, the Government of Indonesia need to take a corrective and make improvisation actions in order to provide incentives and improve existing investment climate to support massive exploration activities.