Indonesia Oil and Gas: Landscape – (Part I)

It is impossible in the format of the Blog to cover such a wide area; thus I will make some general observation, including some latest developments, as well as give links to a number of documents and Web-sites.

Oil and Gas industry in Indonesia is considered to play a strategic role.  The following graph shows that over the years the average contribution to Government of Indonesia (GOI) is about 28%.

 Source: Government support for upstream oil and gas activities in Indonesia

 Indonesia’s proven oil reserves have fallen from 5.6 in 1992 to 3.7 billion barrels in 2012 according to BP’s annual report on oil and gas. The report, “Statistical Review of World Energy 2013,” was released today.

This data, supplied by SKKMigas, is the latest on reserves

 Presently oil production rate is declining at the rate of 3.5% per annum. 2013’s estimates are to have average daily oil output reach 900,000 bpd; to achieve 1.36 million barrels of oil equivalent per day (mboepd) of natural gas. SKKMigas (an interim regulator), a replacement for BPMigas, proposes that the government lower this year’s oil and gas target to around 850,000 bpd and 1.24 mboepd of gas, respectively. According to SKKMigas state revenues from the oil and gas sector this year would decrease to around US$28 billion instead of the initial state budget target of $31.7 billion.

 Source: 2012 PERFORMANCE & 2012 PERFORMANCE & 2013WORK PROGRAM

However, the country’s Oil and Gas sector is still very competitive, as we can see from this table:

The five most competitive features of the Indonesian oil and gas industry are as follows:

Source: Staring Down the Barrel An investor survey of the Indonesian oil and gas industry 2012 by PwC

And industry investors are positive in their outlook:

Source: Staring Down the Barrel An investor survey of the Indonesian oil and gas industry 2012 by PwC

 So, what are the major reasons, and what has to be done. Of course, the biggest problem, as it is in most countries of the world – is the depletion of resources, ageing of equipment and absence of major new reserves discovery and production.

 The industry faces many challenges, but I will focus on two views: one of them being Staring Down the Barrel An investor survey of the Indonesian oil and gas industry 2012 by PwC

From this survey, the five most critical challenges facing the industry are as follows:

1. Interference from other government agencies, such as the tax authorities
2. Uncertainty over cost recovery and BP Migas / BPKP audit findings
3. Contract sanctity
4. Corruption, Collusion and Nepotism (“KKN”)
5. Confusion over Law No. 22/implementing regulations

 Source: Staring Down the Barrel An investor survey of the Indonesian oil and gas industry 2012 by PwC

The other view is expressed by consulting firm Wood Mackenzie : two main challenges remain to be addressed in order to reinvigorate Indonesia's upstream sector: the lack of incentive in its fiscal terms and uncertainty regarding the future of some major Production Sharing Contracts (PSC).
“Indonesia's fiscal terms rank amongst the most severe across the world. The average 86% government take is significantly higher than the global norm of 59%.” This illustrates evolution:

Source: Government support for upstream oil and gas activities in Indonesia

“Another obstacle to investment in Indonesia is the lack of clarity on PSC expiry and potential extensions. Several important PSCs are due to expire within the next decade, including North West Java Sea, Sanga Sanga, Jambi Merang and Offshore Mahakam in 2017.”
This slide shows the view of Indonesian Petroleum Organization: 

 

Source: Natural Gas Pricing and Policy. February 6, 2012. Jim Taylor,President IPA / ConocoPhillips Indonesia

It should be noted that SKKMigas names among the challenges non-technical barriers: licensing, overlapping land, and disruption of security.

PRACTICAL ACTIONS

  GOI approved and started implementation of several programs to improve oil and gas  production. Short-term government programs to increase oil and gas production are achieved through SKKMigas that is tasked to supervise and manage annual and multi-year plans. Till 2016, there will be 12 flagship upstream oil and gas projects consisting of 8 gas, 1 oil project and 3 projects that produce oil and gas. From 12 projects, oil production is expected to increase by 177 thousand barrels per day and gas production will be increased to 2,759 mmscfd. 

EOR (enhanced oil recovery) is one of the major ways. Opportunities to improve production through EOR technology are extreme. Currently, out of 3.7 billion barrels of Indonesian oil reserves as much as 1.7 billion barrels (46%) are concealed in the working area of ​​Pertamina. Furthermore, 78% of all Pertamina’s fields are still a primary production exploitation of oil in the field -- still using the natural reservoir energy to push oil wells into production. This is the area where PT Petrosa Global Energy is actively engaged and I will describe it in my further posts.

One of the areas, that has a good future is Eastern Indonesia. A good insight is provided in the page Summary of “Oil and Gas in Eastern Indonesia” Course by American Association of Petroleum Geologists Universitas Gadjah Mada – Student Chapter (AAPG UGM-SC) with description of geology and proven oil fields. This is well proven by cited PwC document, where most of respondents looked at Eastern Indonesia:

Source: Staring Down the Barrel An investor survey of the Indonesian oil and gas industry

A shift in exploitation of mineral resources from West to East was indeed confirmed by Evita H Legowo, Director General Of Oil And Gas in February 2012:

This completes Part I. In the next post, I will give a brief overview of recent developments and provide links to valuable documents.