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

News Update: Week 24-2013

Parliament Oil & Gas Hearings. This week the leaders of industry were invited to the Commission VII hearings. These were the top management of SKK MIgas, Pertamina EP, Pertamina ONWJ, Chevron Indonesia, Exxon Mobil, CNOOC, ConocoPhillips, Total E & P Indonesia, PetroChina, BOB PT BSP-Pertamina Hulu , and Vico.

The major issue was discussion of lifting of production according to directions by Indonesian President: target of 1 million barrels of oil per day (bpd).

• Rudi Rubiandini, the head of SKKMigas, said that the country was likely to produce 870,000 bpd throughout next year. The most optimistic is 900,000 bpd – in case if production of ExxonMobil at the Banyu Urip field in the Cepu Block in East Java can start in June (land-acquisition issues) – If not, the number is 880,000.
• Eric Isaacson, ConocoPhillips Indonesia, President Director, confirmed discussions are going on for the next year’s target of 29,000 bpd set by SKKMigas.
• Syamsu Alam, President Director of Pertamina EP, stated that problems in land acquisition, licensing for oil and gas drilling prevent from fulfilling the target: of 123 development wells the company is currently only able to drill 64.

SKKMigas Points of View. Rudi Rubiandini, made a presentation this week where he pinpointed some interesting issues in the sector:

• One constraint is that lawmakers are pressuring SKKMigas to push oil and gas companies to lower the cost recovery in their business plans. SKKMigas submitted a proposal that requested the House of Representatives to approve $17.5 billion in cost recovery from the oil and gas sector this year. But lawmakers have been criticizing the regulator as saying the figure is too large, and that it should be lowered to just $15 billion.
• There is a lack of talent to help develop the industry. “There is a brain drain in this sector. Smart Indonesians who understand this sector … they’ve already run away overseas. They’ve gone to Qatar, Australia, the United States or Norway”.
• Still a high level of bureaucracy: permits and social issues that were still major stumbling blocks. “In [West Papua’s] Tangguh project for example, there are 5,000 permits required before it can go on-stream,” he noted

Pertamina Goals to Surpass Chevron. This week Pertamina announced its oil production has surpassed 200,000 barrels per day for the first time (actually, 208,157 barrels). In April it was 204,649 barrels per day; while natural gas production was 1,565 million standard cubic feet per day. This increase was driven by PT Pertamina Hulu Energi Offshore North West Java (PHE ONWJ) and PT Pertamina Hulu Energi West Madura Offshore (PHE WMO) production hike.  Muhamad Husen, Pertamina Upstream Director, confirmed the ambition to overtake Chevron Pacific Indonesia; at the same time by 2025 to be a major player in South-East Asia – through enhancing its operations and M&A activities. One practical announcement was made that Pertamina will start exploiting oil from Algeria in the next few months: this would increase its reserve by 100 million barrels per day and additional crude oil output of 23,000 barrels per day.

              Komaidi Notonegoro, Deputy Director ReforMiner, Research Institute for Mining and Energy Economics,  revealed this week that oil reserves of Pertamina (609 million barrels) are expected to be depleted within the next 8 years - on assumption that the average oil production of Pertamina in April 2013 amounted to 204,649 bpd. For its gas reserves (7.8 trillion cubic feet), Komaidi predicted to be finished in 14 years - on assumption of average production of 1,565 mmscfd of gas in April.  Thus, the only way out is to aggressively conduct exploration activities on existing fields and continue to target oil fields inside and outside country.

 Moving to East? Eastern Indonesia (as I mentioned in my previous Post) is one of the attractions for new developments in Oil & Gas production. However, it is not cheap – according to Mr. Nugrahani, Exploration Director of SKKMigas, the cost of drilling of one exploration well is about $ 200M. It would probably take quite a while, mentioned Mr. Nugrahani, citing the experience of Inpex in Abadi field: production is supposed to start in 2018, while the first drilling was conducted in 1992. This is compared to development in Western part of Indonesia where the time span is around 5 years. The GOI (Dobernment of Indonesia) is sure that east will move on, as it was proved by Inpex with Masela and BP with the Tangguh gas plant in West Papua. Another success was reported this week for Lion Energy (ASX: LIO) athat is doing onshore oil production on Seram Island, Eastern Indonesia: crude oil lifting of 300,744 barrels was completed on May 30th 2013, with Lion's share of the lifting expected to be around US$650,000

Exploration failures. According to the latest reports, as of May 2013, Indonesia has 168 oil and gas blocks under exploration and 21 others in the process of being relinquished to the government. It was reported this week that 12 companies reported $1.9 billion in losses in exploration of 25 wells for deep-sea hydrocarbon reserves offshore Indonesia since 2009. Among these are: ExxonMobil in Surumana and Mandar; Statoil in Karama; ConocoPhillips in Kuma, Amborip VI, and Arafura Sea; Talisman in Sageri; Marathon in Pasang Kayu, Tately in Budong-Budong; Japex in Buton; CNOOC in SE Palung Aru; Hess in Semai IV; Niko Resources in Kofiau, West Papua IV, and North Makassar Strait, and Murphy Oil in Semai. As the result, they want to return 16 exploration blocks under its management to the GOI. Aslo 2 oil and gas deep water exploration blocks (Kumawa and Bone Bay) will be transferred from Marathon Oil to Niko Resources.

EOR Upswing? According to Muhamad Husen, Pertamina Upstream Director, the company could achieve an additional 200,000 barrels per day from its enhanced oil recovery programs in the next two years. The company is looking for partners with proven track record in the application of EOR technologies. In 2013 the company plans to introduce EOR technology in 18 of its oil blocks. However, this is mostly using injection of chemicals before drilling. Meanwhile, it was announced in the North Kalimantan city of Tarakan that the plan is under way to revive 47 oil wells out of the more than 1,346 abandoned (since 1970-ies) wells in the area. Presently Pertamina has only 80 wells in the city that still produce oil (output at around 700 barrels per day and falling 20-30%).

New Indonesian Oil Terminal. Gunvor Group and Oiltanking GmbH announced this week the plans for construction of a greenfield terminal, Oiltanking Karimun, on the island of Karimun (Riau Islands), Indonesia, with initial petroleum storage capacity of 760,000 cbm. This would be targeted to meet the incremental petroleum storage needs of Greater Singapore. The terminal is expected to be operational by second quarter 2015;  will cater to the storage and handling of both light and black oil products. The initial capacity will be supported by four jetties capable of accommodating vessels of up to VLCC dimensions.

Global Oilfield Rental Market - 2013 Report. It was released by Research and Markets this week, and some interesting observations are made there:

• Rising oil & gas prices and increasing drilling activity will drive the global oilfield equipment rental (oilfield rental) market to $46.8 billion by 2018.
• The factors driving growth in the OER market are increasing drilling activity and rising oil prices. These factors are driving the production of uneconomical field viable, tendency of drilling contractor & oilfield service providers to rent rather than buy equipment, and advancements in technology that hugely favors renting. Oilfield rental is a highly developing market despite its large base due to growing energy demand.
• Oilfield rental industry is highly fragmented and localized. Most players in this industry are very small and have a very paltry area of influence, barring a few which are genuinely the rental divisions of big OFS (oilfield service) provider companies. One's offering rental tools in unconventional shale plays and ultra deep-water fields are the most successful rental companies

These are the points that I consider the most interesting in the week that passed. The readers are encouraged to send commentaries.