This is why Indonesia is becoming attractive for oil explorers

Indonesia’s energy needs are spiralling as its population, currently 271 million, continues to grow.

The country has been reliant on oil imports since 2004, a fact that has been blamed for its widening current account deficit and the volatility of the rupiah currency, but February’s presidential election saw both incumbent Joko Widodo and opponent Prabowo Subianto pledge to make self-sufficiency a reality.

One ASX listed oil explorer involved in Indonesia is Bass Oil (ASX:BAS), which rose 50 per cent this morning with news of strong oil flows on its first test well – Bunian 5. The oil well averaged 1128 barrels of oil per day with a 2 per cent water cut.

Bass’ managing director Tino Guglielmo told Stockhead his expectations had been met.

“We know the field well we know what it’s capable of and it’s just validating our opinion of the field,” he said. “It’s a very good result and we had high expectations.”

He also commented that Indonesia was growing “strongly and steadily” and therefore was a good market to be in.

“I don’t like to use the term counter-cyclical but we’re enjoying a profile as a result of our operations and are actively seeking opportunity when there’s little competition,” he said.

“All markets are subject to variations in the global economic climate. But Indonesia in particular has been growing steadily at just over 5 per cent of GDP.

“And as a developing country, the requirement for increased energy use grows with GDP, but it’s a higher proportion.

“Energy consumption in the market in a developing country tends to grow about half the rate of GDP whereas an OECD country will be somewhere around a quarter of 25 per cent growth of GDP.”

He also told Stockhead Indonesia had good refining capacity. The nearest refinery is 80 kilometres away from Bass’ operations and the oil predominantly goes to the domestic market.

Oil prices?

Wherever you find oil, Brent and WTI prices are a concern for explorers. Prices substantially fell in the last quarter of 2018 and have not recovered.

Inventories and production among OPEC nations and the US remain high. According to the Energy Information Administration, US production is currently at 12.6 million barrels per day – a record high.

Speculation has loomed OPEC will make deep production cuts at its December meeting in an attempt to increase prices.

Gugliemo said his company does watch them closely but was more positive about the warm reception from Indonesia.

“We’re not immune to the oil price but I can assure you the Indonesian government is moving the policy levers to accommodate companies seeking to produce energy.”