Indonesia Oil and Gas: Landscape – (Part II)

Continuing discussion from my last post, I would like to display this slide that nicely illustrates Indonesian industry – this was  presented  by Evita H Legowo, Director General Of Oil And Gas in February 2012:

The current state of Indonesian upstream is well described by Satya W. Yudha ,  Member of Commission VII ‐ The House of Representatives ‐ DPR RI in 2012 in this slide

 And he also suggested that:

Upstream Oil & Gas:

• Government should set more competitive contract and fiscal term and other economic policies to attract the investor in oil & gas sector such as development of deep water basin, CBM, Mature field and frontier areas which involve more complex processes, confronting high risks, frontier technology and more complex project financing.

• In near term, to improve governance upstream management capability, to review the competency of the management of upstream implementing body (BPMIGAS) more efficient and transparent bureaucracy, standard accounting system, Cost recovery mechanism.

RECENT DEVELOPMENTS

According to SKKMigas, in 2012, the country drilled as many as 119 exploration wells, the highest amount of explorations in Indonesia in the past decade. Of those 119 wells, 52 were reported to possess total reserves of 541 million barrels of oil as well as 5.4 trillion cubic feet of gas.

This last February SKKMigas head, Rudi Rubiandini, announced that oil and gas contractors would drill 1,178 development wells this year.  They are expected to generate 75,044 bpd of oil and 587 million metric standard cubic feet per day of natural gas by the end of this year. Workover campaigns and well services would be conducted on at least 1,904 existing oil  fields, which is expected to boost oil output by 46,647 bpd and gas output by 351 mmscfd. Thus, in total, all the projects would contribute 14% to Indonesia’s overall oil production target and 11% to its projected gas output in 2013. SKKMigas also announced  later that it would gear up drilling activities on the exploration wells of around 258 basins as well as launch an 18,752-kilometre, 2-D seismic survey and a 22,298-square-kilometre, 3-D survey. 

Source: 2012 PERFORMANCE & 2012 PERFORMANCE & 2013 WORK PROGRAM

Last May, it was announced by SKKMigas that in 2015 there will be five major upstream oil and gas projects that will provide significant additional production. These are: Indonesian Deep Water Field Developmen (IDD), Banyu Urip Field, Masela, Muara Bakau Jangkrik dan Jangkrik and North East as well as the Tangguh Train III. 

Of course, the picture is far from rosy – and some major players are indicating their dissatisfaction. It was reported in March, and confirmed in June -- Hess Corp. and Anadarko Petroleum Corporation are considering getting out.

The latest news can be found in my post News Update - Week 24, 2013; Please, follow our Blog – We will update every week….

And here are some useful links that give more information:

• The dissolution of BPMIGAS — impact and consequences by Latham & Watkins LLP
• Oil and Gas in Indonesia. Investment and Taxation Guide by PwC August 2011 - 4th edition
• Detailed report on oil and gas in the country is provided in this Indonesian Energy Report by Norton Rose
• Challenges in Indonesia’s Oil and Gas Industry by Global Business Guide gives some description of Oil and Gas  Industry and Law
• Indonesia Oil and Gas Laws by Oentoeng Suria & Partners (OSP), an Indonesian commercial law firm
• Getting the Deal Through – Gas regulation 2008 by Soewito Suhardiman Eddymurthy Kardono
• A little bit outdated but more or less full characteristic is presented on Indonesia, Oil & Gas Profile by A Barrel Full
• US Energy Information Administration page on Indonesia has fresh information and full report on Indonesia sector may be uploaded here
• Geologic Basins Map is provided by Indonesian Petroleum Association that also lists Indonesian Law documents

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.