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Hit to Indonesia's oil and gas revenue threatens deficit, crude output

[JAKARTA] Indonesia's oil and gas revenues are expected to drop by at least a third this year as a fall in production costs fails to keep pace with plunging oil prices and threatens to limit future output.

Indonesian energy officials said oil companies would be urged to cut costs to limit the revenue hit.

Income from the oil and gas sector accounts for a fifth of revenue in Southeast Asia's biggest crude producer, but as fields mature and investment lags crude production has flagged and turned the former Opec member into a net importer.

While a more than 40 per cent drop in global oil prices since June has helped Southeast Asia's biggest economy save billions of dollars by cutting fuel subsidies, lower oil and gas revenues would dent these gains and pressure a fiscal deficit.

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"The global collapse in oil prices has obviously played a major role in the government's ability to meet those cuts in fuel subsidies ... but it is also going to undermine government revenue," said Andrew Wood, head of Asia risk at BMI Research.

This may widen Indonesia's 2015 fiscal deficit to 2.4 per cent of GDP against a target of 1.9 per cent, he added.

BMI forecast a 45 per cent drop in oil and gas revenue this year, while energy consultancy Wood Mackenzie projected revenues of US$35 billion, down 35 per cent from last year's US$53.8 billion.

Wood Mackenzie's estimate is based on an oil price assumption of US$60 a barrel, versus US$103 previously.

Andrew Harwood, a senior upstream analyst at Wood Mackenzie, said oil production costs could fall by about 20 per cent by end-2015, but that would still lag an oil price drop.

In a bid to lower production costs, oil and gas firms should use more locally sourced goods or supporting equipment, Energy Minister Sudirman Said told reporters.

Indonesia's upstream regulator SKK Migas is working with energy firms to review their budgets and work plans, Budi Agustiono, deputy of finance controlling, told Reuters.

Chevron Corp is the largest oil producer in Indonesia followed by state-run Pertamina. Other explorers include ExxonMobil, ConocoPhillips, BP, ENI and CNOOC Ltd.

As profits fall, there are worries future output could be hit if investment is pared back.

Pertamina has already curbed operations at less efficient refineries such as Plaju and plans to boost fuel imports. It has also hiked crude imports this year.