Indonesian oil supply may increase next year

Indonesian oil supply may increase next year

SINGAPORE (Dow Jones): Amid economic meltdown, Indonesia's oil
and gas drillers have maintained a brisk rate of activity that
may increase oil supplies as much as 7 percent in 1999, according
to a survey of oil companies in Indonesia by Dow Jones Newswires.

Indonesia's production-sharing contractors appear to be
thriving in adversity, faced this year with a host of problems
including 12-year-low oil prices, political upheaval and economic
recession.

Add to that the Organization of Petroleum Exporting Countries'
continuing efforts to reduce crude supplies, and 1998 would seem
an unlikely year for the oil industry to expand.

But new investment and increased efficiency hold the potential
for an increase of more than 110,000 barrels a day in Indonesia's
oil and condensate supplies next year. Indonesia has produced an
average of 1.33 million-1.38 million b/d of crude oil so far this
year, with additional condensate production of about 200,000 b/d.

Before this year, Indonesia had been forecast to become a net
oil importer as early as 2003 owing to declining output and rapid
demand growth. But the economic crisis has slashed oil demand by
an estimated 15 percent this year, and with recovery expected to
take several years oil supply increases would help expand oil
exports.

"Given the crucial contribution that oil makes to our foreign
exchange reserves we are taking a number of measures to ensure
that Indonesia remains a net oil exporter for many years to
come," said Mines and Energy Minister Kuntoro Mangkusubroto
earlier this week. Kuntoro cited energy conservation and removal
of domestic oil product subsidies as ways of maintaining exports.

Supply increases through 1999 would come mainly from oil
fields already in production, but by 2001 new developments are on
the table for discoveries in deep waters off the coast of East
Kalimantan and in Indonesia's Timor Sea zone of cooperation with
Australia.

The largest volume of any increase in crude supplies through
1999 would be from the Corridor natural gas pipeline project,
which aims free up for sale 50,000-60,000 b/d of Duri crude oil
currently burned for steam in central Sumatra. The project is
scheduled to commence this month and reach capacity in early
1999.

PT Caltex Pacific Indonesia, which operates the Duri steam-
flood project, is considering a similar enhanced oil recovery
project to extend the life of the nearby Minas field. Caltex is a
joint venture of Chevron Corp. and Texaco Inc.

Further south, Maxus Southeast Sumatra Inc., the country's
largest offshore producer, raised production capacity at its main
concession this year to 180,000 b/d, or about 29% higher than
1997 production levels of 140,000 b/d. So far in 1998 production
has averaged about 150,000 b/d, but it may increase to help the
company meet its January 1999 target for producing its billionth
barrel. Maxus is a unit of Argentina's YPF S.A.

In Southern Sumatra, Indonesian producer PT Medco Energi plans
to raise output from the Kaji and Semoga fields about 10,000 b/d
to 30,000 b/d in 1999 as new pipeline connections raise its
market access.

In the West Natuna sea, Gulf Indonesia Resources Ltd. plans to
bring two new oil discoveries in its Kakap block on-stream in
December with a combined production capacity of about 11,000 b/d.
Also in the West Natuna area, Conoco Inc. announced a substantial
oil discovery this month in the West Natuna area, but officials
declined to predict production levels.

Total S.A.'s Total Indonesie unit expects a marginal increase
in its current oil and condensate production of about 70,000 b/d
from its East Kalimantan fields as a by-product of higher natural
gas output for its new liquefied natural gas trains.

Although many production-sharing contractors are cutting their
exploration spending amid low global crude prices, Unocal Corp.
and Mobil Corp. are maintaining an aggressive drilling campaign
in deep waters off East Kalimantan.

Unocal plans to drill at least five of the 50-60 deep-water
prospects it has identified by year-end, and it has estimated oil
and gas resource potential in just three of those prospects of
345 million-1.09 billion equivalent barrels of oil. The company
plans to submit a development plan by the end of the year, with
first production targeted early 2001.

In Indonesia's Timor Sea Zone of Cooperation with Australia,
Broken Hill Proprietary Co. is planning to develop condensate
reserves at the Bayu-Undan field ahead of development of the
fields natural gas reserves. Proven and probable condensate
reserves are estimated at 400 million barrels, and BHP plans to
begin production in late 2001.

The first oil development in the zone of cooperation, the BHP-
operated Elang and Kakatua fields, produced as much as 36,000 b/d
after commencing in July and is expected to stabilize this month
at 32,000 b/d. Indonesia and Australia share equally the
government revenue from the zone's oil output.