Indonesia Energy Is Set to Take Off With Low Production Costs

INDO stock - Indonesia Energy Is Set to Take Off With Low Production Costs

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Indonesia Energy (NYSE:INDO) is involved in the exploration and production of oil and gas in Indonesia. What sets INDO stock apart from its competitors is its ability to produce oil at a significantly lower price. As of 2020, crude oil production costs averaged around $30 to $40 per barrel. Indonesia Energy produces oil for $24.51 per barrel.

With oil currently trading near $100 per barrel, INDO stock has significant growth opportunities.

The company achieves lower production costs due to few factors. Its strategy is to acquire medium-sized matured oil fields with proven undeveloped reserves. These are generally either overlooked by large corporations or do not qualify for their asset selection criteria. The strategy creates the potential to generate considerable profit.

Subsequently, management is finding ways to enhance production on these oil fields. Extraction volumes inevitably decline in maturing oil fields due to normal wear and tear. The company’s target is to maximize its fields’ production potential.

In April 2022, management announced the company would commence drilling operations on its two back-to-back producing wells. The operation at one well has already begun, with a goal of drilling 3,400 feet deep in 45 days. Following this, Indonesia Energy plans to start drilling on another well.

If successful, INDO stock will gain significantly. Management expects to generate $2.4 million in net revenue from each well, producing at least 100 barrels of oil per day in the first year. Total costs are estimated near $1.5 million each, implying sufficient profits within first 12 months of operations.

In addition to this, management disclosed intentions to drill another two new wells in the second half of 2022.

Geopolitical tensions play a significant role in oil prices. As some European countries step up to reduce their dependency on Russian oil and gas, other international players such as INDO stock will tend to benefit.

Going forward, management has ambitious plans to to enhance production and cash flow by more than 200%. The company also plans to drive down costs below $20 per barrel and drill 18 wells over next three years.

All these initiatives make INDO stock look like an appealing investment.

On the date of publication, Sakshi Agarwalla did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines. 

Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.

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