SKK MIGAS ANNUAL REPORT Pendahuluan

Transcription

1 Annual Report 2014

2 2 Pendahuluan

3 1 Content INTRODUCTION SKK Migas Vision and Mission 2 Core Values 3 SKK Migas Oversight Committee Chairman Foreword 4 Chairman of SKK Migas Foreword 6 The History of SKK Migas 8 SKK Migas Management 10 SKK Migas Organization Structure 13 Annual Report 2014 Summary 14 Chapter I SKK MIGAS PERFORMANCE 2014 A. Oil and Gas Contract Areas 18 B. Resources and Reserves 20 C. PSC Contractors Commitment 24 D. PSC Contractors Investment in Exploitation & Exploration Stages 30 E. Oil and Gas Lifting Production Activities 32 F. Distribution of Oil and Gas Revenues 39 G. Efficiency of Cost Recovery 41 Chapter II EFFORTS TO INCREASE PRODUCTION AND RESERVES A. New Projects 46 B. Efforts to Increase Oil and Gas Production and Reserves 47 C. Sharing Knowledge Forums 56 D. Cooperation with other Institutions 60 E. Challenges in the Achievement of Production Target Chapter III MAJOR PROJECTS 65 A. Banyu Urip Project of ExxonMobil Cepu Ltd. 68 B. Indonesian Deepwater Development Project of Chevron Indonesia Co. 70 C. Abadi Project of Inpex Masela Ltd. 72 D. Tangguh Train-3 Project of BP Berau Ltd. 74 E. Jangkrik Project of Eni Muara Bakau 76 F. Senoro Project & Matindok Project of Job Pertamina- Medco Tomori Sulawesi & PT Pertamina EP 80 G. Bukit Tua Project of Petronas Carigali Ketapang II Ltd. 83 Chapter IV EMPOWERING NATIONAL CAPACITY 85 A. Optimization of Crude Oil Production for Domestic Refineries 86 B. Increasing Gas Supply to Meet Domestic Demands 88 C. Utilization of Local Goods and Services 90 D. Involvement of State/ Regional Owned Banks in the Oil and Gas Business Activities 92 E. Management and Development of PSC Contractors Human Resources 94 Chapter V INTERNAL SKK MIGAS 97 A. Audit Report from the Supreme Audit Board (BPK-RI) 98 B. Sustainability Reporting Award 98 C. Continuous Improvement in the Governance Aspect of the Organization 99 D. Communication and Information Technology System 103 Attachment Map of the Indonesian Conventional and Unconventional Oil and Gas Contract Areas in

4 2 Introduction SKK Migas Vision and Mission VISION Be a proactive and trustworthy partner in optimizing the benefits of the upstream oil and gas industry for all stakeholders while becoming one of the Nation s engines in mobilizing different economic and industrial activities. MISSION Supervise and control the Production Sharing Contracts implementation through partnership in order to ensure the effectiveness and efficiency of upstream oil and gas business activities for the greatest welfare of the Nation.

5 3 Core Values PROFESSIONAL Act as a professional with strong commitment RESPONSIVE Promptly responding to inquiries and resolving issues UNITY IN DIVERSITY Synergizing the differences for greater achievements DECISIVE Taking calculated risks within the authority ETHICS Conducting business by following the highest ethical standards consistently NATION FOCUSED Maximizing national capacity and capability TRUSTWORTHY Maintaining credibility to earn the trust of stakeholders

6 SKK MIGAS ANNUAL REPORT Introduction SKK Migas Oversight Committee Chairman Foreword Oil and gas resources must be managed correctly and properly to provide maximum added value for the nation and state; while on the other hand, it has to provide a fair economic value for the investors due to the high capital, high risk, and long term nature of investment in the upstream oil and gas sector.

7 5 Assalamualaikum Wr. Wb Giving praise to Allah SWT, I joyously welcome the publication of the 2014 SKK Migas Annual Report, which provides a general illustration of the various achievements and challenges of the upstream oil and gas industry throughout 2014 The year of 2014 is the second year that the SKK Migas Oversight Committee has been in duty following the dissolution of BPMIGAS by the Constitutional Court on 13 November The Oversight Committee was established to ensure that the activities and approvals stipulated by SKK Migas are in conformity with the oil and gas resource management and the government s macro policies, particularly policies in the energy sector. In the second half of 2014, there were changes in the government due to the General and Presidential Election, including changes in the SKK Migas Oversight Committee membership that was adjusted with the new Cabinet configuration. However, despite these changes, the principals of the upstream oil and gas industry remained focused on the effort to achieve the targets that were set in the beginning of the year. Therefore, I convey my highest appreciation to the principals and all the stakeholders who have supported the sustainability of this industry. In addition, I really hope that the plunging level of public trust toward the upstream oil and gas industry in the last few years, could be answered with real actions in the improvement of governance. As a result, I greatly support the various policies that SKK Migas is implementing to improve public trust once again Oil and gas are very strategic natural resources for Indonesia, as a source of foreign exchange and as one of the sources to meet the national energy demands. Therefore, these resources must be correctly and properly managed to provide maximum added value to the nation and state; but on the other hand, it has to provide a fair economic value for the investors due to the high capital, high risk, and long term nature of investment in the oil and gas upstream sector. The safety and environment aspects must be prioritized so the development of the upstream oil and gas industry can be in line with the sustainable development concept. The utilization of national capacity should also be improved as an effort to accelerate the transfer of knowledge and technology in the upstream oil and gas industry. Once again, I would like to thank the support from all the parties. By establishing a stronger synergy between the stakeholders, the expectation is that in the future, the upstream oil and gas industry could offer a better performance to the nation and state. Wassalamualaikum Wr. Wb. Sudirman Said Minister of Energy and Mineral Resources

8 6 Introduction Chairman of SKK Migas Foreword At present and in the future, the upstream oil and gas industry will be directed as a value creator to the maximum extent possible for the Nation.

9 7 Assalamualaikum Wr. Wb. Let us praise God Almighty for allowing the upstream oil and gas industrial activities to run smoothly despite facing various internal and external challenges. Throughout 2014, we continue to perform various efforts to achieve the targets set by the Government through the State Budget (APBN) and the Work Program and Budget of PSC Contractors. In the past few years, there has been a shift of paradigm in managing the upstream gas oil and gas industry. Originally, the upstream oil and gas industry is focused as a state revenue generator, but at present and in the future, the upstream oil and gas industry will be directed as a value creator to the maximum extent possible for the Indonesian nation. This means that the upstream oil and gas industry is not just a source of foreign exchange, but will serve as a catalyst for national economic growth. In relation to encouraging national economy growth, we have managed to record the achievement of maintaining the domestic goods/service level of utilization at above 50%, to encourage the involvement of state-owned and regional-owned national banks in goods/services procurement payment transactions, to encourage the involvement of state-owned enterprises as goods/service suppliers for fulfilling the requirements of the upstream oil and gas industry, and to allocate a larger portion of the gas for domestics demands. We also consistently strive to accelerate the transfer of knowledge and technology in the upstream oil and gas industry through various capacity development programs for local human resources. Of course, in order to realize these numerous added values, additional workforce is required, particularly related to the efforts to increase production and new additional reserves in short, medium, and long period of time. From the good governance perspective, we are strongly committed to cooperate as closely as possible with the stakeholders and to make the upstream oil and gas industry free from bribery, kickback, luxurious hospitality and gift in order to increase the level of public trust in the upstream oil and gas industry. Meanwhile from the regulatory aspect, a revision of the Oil and Gas Law should be ratified in the near future so there is legal certainty regarding the management of oil and gas following the Constitutional Court decision dated 13 November Last but not least, we would like to thank all the stakeholders and national components for their support. The performance record in the annual report is a form of our accountability for the support and trust given. We hope that this support will continue in the upcoming years so we would be able to provide an even better performance in delivering the maximum added value for the state and nation. Wassalamualaikum Wr. Wb. Amien Sunaryadi Chairman of SKK Migas

10 SKK MIGAS ANNUAL LAPORAN REPORT TAHUNAN Introduction Introduction The History of SKK Migas Law No. 44 of 1960 on Petroleum regulates that the previous concession system applied to oil and gas companies is changed to a contractual system Pertamina was established, oil and gas revenues was managed by Pertamina Law No. 8 of 1971 upholds the capacity of Pertamina as a company, regulator and supervisor of upstream oil and gas business activities Presidential Instruction No. 12 of 1975 regulates that oil and gas revenues are directly remitted to the Ministry of Finance due to Pertamina s large amount of debt 2012 On 13 November 2012, the Constitutional Court rendered Decision Number 36/PUU-X/2012 declaring that the phrases related to Executive Agency for Upstream Oil and Gas Business Activities (Badan Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi (BPMIGAS)) as stated in Law No. 22 of 2001 on Oil and Gas are in contradiction with the 1945 Constitution and shall have no legally binding force. The implication of this decision resulted in the transfer of roles of BPMIGAS to the Government cq. relevant Ministry. To ensure that the upstream oil and gas operations are not disrupted following the issuance of the Constitutional Court Decision, the Government promulgated Presidential Regulation No. 95 of 2012 on the Transfer of Duties and Roles in the Management of Upstream Oil and Gas Business Activities. The Presidential Regulation asserts that the duties, roles, and organization of BPMIGAS is transferred to Minister of Energy and Mineral Resources (EMR). The Presidential Regulation No. 95 of 2012 was followed up by the promulgation of two Minister of EMR Decrees, namely Minister of EMR Decree No. 3135K/08/MEM/2012 & Minister of EMR Decree No. 3136K/73/MEM/2012 transferring the duties, roles and organization of BPMIGAS to Interim Task Force for Upstream Oil and Gas Business Activities (Satuan Kerja Sementara Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi (SKMIGAS)).

11 SKK MIGAS ANNUAL LAPORAN REPORT TAHUNAN Law No. 22 of 2001 on Oil and Gas regulates the separation of upstream and downstream activities and assignment of state owned enterprises (BUMN) as operators GR 42 of 2002 provides for the establishment of BPMIGAS as upstream oil and gas regulator PT Pertamina as the operator shall manage its obligation to remit dividends to the Government The Constitutional Court repealed several articles in Law No. 22 of 2001 related to the establishment of BPMIGAS 2013 On 14 January 2013, through the Presidential Regulation No. 9 of 2013 on Management of Upstream Oil and Gas Business Activities, the Special Task Force for Upstream Oil and Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi (SKK Migas)) was established to manage the upstream oil and gas business activities until the enactment of a new law in the oil and gas sector. With this, SKMIGAS duties and responsibilities are transfered to SKK Migas. For the purpose of controlling, supervising, and evaluating the management of upstream oil and gas business activities conducted by SKK Migas, an Oversight Committee was also established under the Presidential Regulation No. 9 of On its establishment, the Oversight Committee consists of Chairman (Minister of EMR), Deputy Chairman (Deputy Minister of Finance) and two members (Chairman of Indonesia Investment Coordinating Board and Deputy Minister of EMR).

12 10 Introduction SKK Migas Management Chairman of SKK Migas Vice Chairman of SKK Migas Secretary of SKK Migas Amien Sunaryadi was inaugurated as the Chairman of SKK Migas on 21 November Before assuming his new role, he served as Deputy Chief of Corruption Eradication Commission (KPK) ( ), Senior Governance and Anti-Corruption Officer of World Bank ( ), and Fraud Investigation& Dispute Services at Ernst & Young Indonesia ( ). Born in 1960, he managed to earn degrees from Sekolah Tinggi Akuntansi Negara (Indonesia State Collage of Accountancy) and College of Business Administration, Georgia State University, Atlanta. He began his career by working as a civil servant at the Finance and Development Supervisory Agency (BPKP). Johanes Widjonarko was inaugurated as the Vice Chairman of SKK Migas on 8 February He initially served as Acting Chairman of SKK Migas (August November 2014), Vice Chairman of BPMIGAS (2012) and Deputy for General Affairs at the same agency (2011). Born in 1962, Widjonarko graduated from the Geological Engineering Department of Universitas Pembangunan Nasional (UPN), Yogyakarta, in He then obtained a Master Degree in Business Policy Administration Science from the University of Indonesia (UI) in Widjonarko began his career by working as a civil servant at the Directorate General of Oil and Gas, Ministry of EMR, since Gde Pradnyana was inaugurated as the Secretary of SKK Migas on 8 February 2013 following assuming his offices as BPMIGAS Deputy for Operations Management, Had of Public Relations, Security and Formalities Division, and Vice President Management Representative for CNOOC at the same agency. Born in 1960, Gde earned a degree in Civil Engineering from ITB in He received his master degree in Ocean Engineering from University College London and subsequently his Doctor of Philosophy in the same field from the University of Oxford, UK in 1992.

13 11 SKK Migas Chief Executive Audit SKK Migas Deputy for Planning Management SKK Migas Operations Management Budi Ibrahim was inaugurated as SKK Migas Chief Executive Audit on 26 August 2013 after previously serving as Head of the Information Systems Management Division (2012) and Head of the Evaluation, Reporting and Information Technology Division (2010) of BPMIGAS and Director of Information and Data Processing of Corruption Eradication Commission (KPK) (2004). Born in 1962, Budi earned his Mechanical Engineering degree from Universitas Indonesia (UI) in 1987 and obtained his Doctorate degree in Engineering (Dr.-Ing.) from Technische Universitaet Berlin TU- Berlin), Berlin, Germany in Aussie B. Gautama was inaugurated as SKK Migas Deputy for Planning Management on 8 February 2013 following his office of BPMIGAS Advisor for Exploration and Reserves Concept since September Born in Canberra on August 22 nd, 1955, Aussie graduated from ITB s Geological Engineering Study Program under thesis of Geology, Biostratigraphy and Mineralization of Skarn in the Area of Carstensz Pyramide Platen Spitz, Jayawijaya Mountains, Irian Jaya. He has more than thirty years of experience in oil and gas industry and 10 years of which was spent abroad. Before assuming his new role at SKK Migas, Aussie worked for Total E&P Indonesie from 1982 to September 2012, with his last position as Vice President Geosciences & Reservoir. Muliawan was inaugurated as SKK Migas Deputy for Operations Management 8 February Born in Jakarta in 1961, Muliawan received his undergraduate degree in Exploration Mining Engineering from ITB and his master degree in Management Program from Universitas Gajah Mada (UGM). Muliawan has extensive experience in upstream oil and gas operations, either during his term of office in Pertamina or during his service in BPMIGAS. Several positions were occupied by Muliawan in BPMIGAS, among others are Head of Production Operations Division and Deputy for Operations Management.

14 12 Introduction SKK Migas Management SKK Migas Deputy for Financial Management SKK Migas Deputy for Commercial Management SKK Migas Deputy for Business Support Management Budi Agustyono Agustyono was inaugurated as SKK Migas Deputy for Financial Management on 26 August 2013 after serving as the Head of Operations Cost Audit Division. Born in Jakarta in 1958, Budi obtained his undergraduate degree majoring in accounting from Universitas Indonesia (UI) in 1985 and then earned his master degree in management program from Universitas Gajah Mada (UGM) in Several other positions that he has held in this industry are among others as BPMIGAS Head of Operations Cost Audit Division and Head of BPMIGAS Representative Office for Kalimantan and Sulawesi Areas. Widhyawan Prawiraatmadja was inaugurated as SKK Migas Deputy for Commercial Management on 8 Februari 2013 following his offices as BPMIGAS Management Secretary and Deputy for Planning at the same agency. Born in Bandung in 1960, Widhyawan earned his bachelor degree in Industrial Engineering from ITB in He continued his study and earned a Ph.D. in economics from University of Hawaii in Working for the energy sector for more than 25 years, Widhyawan has held various executive positions both in national and multinational companies, among others, as Country Executive for GE Energy Indonesia M.I. Zikrullah was inaugurated as SKK Migas Deputy for Business Support Management on 17 July Born in 1961, he obtained master degree in law from Universitas Indonesia (UI). Several other positions that he has held in this industry are among others as Head of Program and Reporting Department, Head of Legal Counsel and Formalities Division, Vice President Management Representatives for Donggi Senoro, Head of Oil and Gas Monetization Division, Head of Legal Counsel Division and Head of Procurement and Asset Management Division.

15 13 SKK Migas Organization Structure EXECUTIVE ADVISOR CHAIRMAN VICE CHAIRMAN CHIEF OF AUDIT EXECUTIVE SECRETARY VICE PRESIDENT MANAGEMENT REPRESENTATIVES PROGRAM AND REPORTING PUBLIC RELATIONS INTERNAL AFFAIRS DEPUTY FOR PLANNING MANAGEMENT DEPUTY FOR OPERATIONS MANAGEMENT DEPUTY FOR FINANCIAL MANAGEMENT DEPUTY FOR COMMERCIAL MANAGEMENT DEPUTY FOR BUSINESS SUPPORT MANAGEMENT EXPLORATION DIVISION PROJECT MANAGEMENT AND FACILITIES MAINTENANCE DIVISION RISK MANAGEMENT AND TAXATION DIVISION CRUDE AND CONDENSATE COMMERCIALIZATION DIVISION HUMAN RESOURCES DIVISION EVALUATION AND DEVELOPMENT DIVISION PRODUCTION OPERATIONS DIVISION ACCOUNTING DIVISION NATURAL GAS COMMERCIALIZATION DIVISION SUPPLY CHAIN MANAGEMENT DIVISION EXPLOITATION DIVISION OPERATIONS SUPPORT DIVISION OPERATIONAL COST AUDIT DIVISION PLAN OF DEVELOPMENT COMMITMENT REALIZATION DIVISION LEGAL ADVISORY AND FORMALITIES DIVISION WORK PROGRAM AND BUDGET MANAGEMENT DIVISION SURVEY AND DRILLING DIVISION GOVERNMENT ENTITLEMENT AUDIT DIVISION INFORMATION SYSTEM MANAGEMENT DIVISION

16 14 Introduction Introduction Annual Report 2014 Summary In the last five decades, the oil and gas sector has remained one of the main sources of state revenues. Currently, the contribution from this oil and gas sector is in the form of tax and non-tax state revenues reaching 25% of the state budget. In its development, the national upstream oil and gas industry has experienced a series of paradigm shifts, for example, the tendency of exploration activities moving to eastern part and deep-water areas of Indonesia, the priority of gas production emphasized to meet domestic demands, the discovery of natural gas reserves higher than that of crude oil, and the oil and gas industry being one of the national economic locomotives. One of the implications of such paradigm shifts is the challenge for the government in the efforts to discover new reserves of oil and gas in new fields and in the existing ones. If this condition persists, this challenge must be answered immediately in view that there is a tendency that the proven reserves of oil and gas are going to keep down while the rate of oil consumption keeps increasing. On the other hand, from year to year, the upstream oil and gas sector remains one of the mainstays of the state revenues.

17 15 15 OBJECTIVES TARGETS REALIZATION % ACHIEVEMENT To contain the decline rate of production in 2014 The average decline rate of national oil production is <5% 3.07% Achieved To increase the oil and gas reserves The achievement of Reserve Replacement Ratio in 2014 for oil and gas is 65% (barrel oil equivalent) 66.62% % Achieved To achieve the oil and gas lifting target a. Oil Lifting: 818 Mbopd Mbopd (YTD) 96.53% Achieved b. Gas Lifting: 6,853 MMscfd 6,766 MMscfd (YTD) % Achieved c. Oil and Gas Lifting: 2,042 Mboepd 1,998 Mboepd (YTD) 97.85% Achieved To control the Cost Recovery US$15,042 billion US$15,58 billion (YTD) % Less Achieved To improve the Governance System SKK Migas Financial Statements for the Nov 14 th - Dec 31 st, 2012 period and the 2013 period obtained Unqualified Opinion predicate SKK Migas Financial Statements for the Nov 14 th - Dec 31 st, 2012 period and the 2013 period obtained Unqualified Opinion predicate Achieved

18 16 SKK Migas Performance 2014 SKK Migas continues to control I. POTRET KINERJA SKK MIGAS 2014 the operating costs in order to achieve the most effective and efficient level so as to provide an optimum contribution to the state revenues from the upstream oil and gas sector. CHAPTER I

19 SKK MIGAS ANNUAL REPORT SKK Migas Performance 2014

20 18 SKK Migas Performance 2014 A. Oil and Gas Contract Areas One of the Government s ways to increase oil and gas reserves and production is by conducting extensification. It adds a number of new contract areas (CA) through the signing of Production Sharing Contracts. As of the enactment of Law Number 22 of 2001 on Oil and Gas, the Government represented by SKK Migas (formerly BPMIGAS) has signed 212 Production Sharing Contracts (PSCs) with 7 of them signed in 2014 Oil and Gas Contract Areas Unconventional CA Conventional Exploration CA Exploitation CA Total CA

21 19 Based on the distribution of Contract Areas in 2014,, there are 81 Exploitation Contract Areas and 235 Exploration Contract Areas, either conventional or nonconventional. Additionally, the Government approved the termination of 8 PSCs and another 41 PSCs were undergoing termination process. Resulting in a total of 316 PSCs at the end of The Distribution of Contract Areas in 2014 TOTAL EXPLOITATION SHALE GAS CBM ACTIVE EXPLOITATION ONSHORE 156 CA 42 CA 1 CA 53 CA 52 CA TERMINATION PROCESS 8 CA OFFSHORE 125 CA 28 CA CA 28 CA ONSHORE/ OFFSHORE 36 CA 11 CA - 1 CA 18 CA 5 CA ACTIVE UNCONVENTIONAL HYDROCARBON CONTRACT AREA 55 CA ACTIVE OIL AND GAS CONTRACT AREA 139 CA TERMINATION PROCCESS 41 CA PRODUCTION CONTRACT AREA 63 CA DEVELOPMENT CONTRACT AREA 18 CA EXPLOITATION CONTRACT AREA 81 CA TOTAL CONTRACT AREA 316 CA EXPLORATION CONTRACT AREA 235 CA Change of the Status of CA as per 1 Jan Des 2014 In Exploration CA: 1 achieved Exploration PSC status, namely Bulu CA operated by KrisEnergy 8 Contract Area were approved for termination (Manokwari, SE Palung Aru, Enrekang, Alas Jati, North East Madura III, Banyumas, Buton, and Anambas Contract Area) 7 Exploration Contract Area were signed on 26 February 2014, but 1 CA of East Bontang was cancelled on 31 December Contract Area were recommended to be terminated (8 Contract Area were relinquished by the Contractors, 8 Contract Area were terminated automatically and 1 CA was terminated automatically for the failure of meeting the Performance Deficiency Notice) 41 Contract Area were undergoing termination process where the termination process for 26 Contract Area started in 2014 In Exploitation CA: 80 Contract Area are definitive + 1 CA is under temporary operatorship; there are 81 Contract Area in total 1 CA is under temporary operatorship until 31 December 2015 located in Kampar area (categorized as Production CA)

22 20 SKK Migas Performance 2014 B. Resources and Reserves The decline of national oil and gas reserves continued to occur with an average rate of 0.75 billion barrels of oil equivalent per year within the period of Efforts to contain the decline rate have been performed through various programs for increasing the exploration activities. Indonesia s Oil Reserves (Billion Barrel) Potential Oil + Condensate Proven Oil + Condensate Note: *) Proven reserve (P1) **) Potential reserve = probable reserve (P2) + possible reserve (P3) Indonesia s Gas Reserves (Tscf) Potential Gas Proven Gas Note: *) Proven reserve (P1) **) Potential reserve = probable reserve (P2) + possible reserve (P3)

23 21 At present, the national oil and gas reserves are generally scattered within the Indonesian archipelago as from Sumatera Island to Papua Island with a tendency that the volume of reserves in west area is higher than that in the east area. In total, the oil reserve (3P) is 7,375 MMstb and the gas reserve (3P) is 149 Tscf. Oil and Gas Reserves Map 51 Oil Reserves (MMstb) Proven (P1) = 3,624 Potential(P2+P3) = 3,751 Total (3P) = 7, Gas Reserves (Tscf) Proven (P1) = Potential (P2+P3) = 49 Total (3P) = 149 The data analysis results as of January 1st, 2014 indicates the ultimate recovery factor distribution as illustrated below: Ultimate Recovery Factor of Oil Field per Basin January 1 st, 2014 Status 60% 50% 53.09% 55.08% Primary Secondary Tertiary 40% 30% 20% 10% 29.97% 29.02% 30.29% 40.29% 25.36% 30.97% 28.76% 29.57% 40.70% 24.17% 31.18% 27.21% 35.58% 24.93% 21.14% 24.90% 27.16% 26.82% 18.50% 25.70% 33.35% 30.00% 27.68% 36.04% 0 North Sumatera Central Sumatera South Sumatera West Sumatera Sunda North West Java East Java North East Java Barito Kutai Tarakan Banggai Seram Sulawati Bintuni Indonesia

24 22 SKK Migas Performance 2014 Ultimate Recovery Factor of Gas Field per Basin January 1 st, 2014 Status 100% 90% 80% 70% 60% 50% 40% 67.17% 64.73% 74.43% 55.24% 65.12% 74.57% 63.77% 80.29% 68.59% 72.07% 91.61% 68.17% 73.19% 85.61% 87.15% 80.59% 60.04% 48.21% 80.25% 67.84% 30% 20% 10% 0 North Sumatera Central Sumatera South Sumatera West Natuna Sunda East Natuna North West Java North Central Java East Java North East Java Barito Kutai Tarakan South Makassar Bone Banggai Timor Sea Sulawati Bintuni Indonesia The confidence level in this evaluation is at 99%. Several basins have a very wide confidence interval resulting from very few data that leads to a very high uncertainty. Meanwhile, the national oil and gas resources are still considerable. Total recoverable national oil and gas resources are 37,025 million stboe where the three largest resources are located in Java, Papua and Sumatera areas. Oil and Gas Resources Map January 1 st, 2014 Status 4,328 8,865 7, ,009 6,351 Recoverable Resources (MMstboe) Total Recoverable Resources = 37,025 MMstboe 7,

25 23 In order to improve the status from Resources to Proven Resources, an acceleration of more intensive exploration program is required. Ideally, one barrel of oil equivalent produced should be replaced by one barrel of oil equivalent discovered. The ratio of new reserve discovered to the reserve produced is called the Reserves Replacement Ratio (RRR). RRR - Oil (Percentage of RRR) Target 100% 90% 80% 81.70% 70% 61.90% 62.50% 60% 52.20% 50% 44.42% 40% 32.20% 30% 22.60% 20% 10% RRR - Gas (Percentage of RRR) 350% 300% % 250% 200% % 150% % % Target 100% 69.20% 90.06% 50% 34.60% 0%

26 24 SKK Migas Performance 2014 C. PSC Contractors Commitment EXPLORATION COMMITMENT Conventional Oil and Gas At present, there are 139 active conventional oil and gas exploration CAs. The fulfillment of Firm Commitments is assessed for 106 CAs that have entered their 3rd contract year or more and are not under termination process. The result of this assessment indicates that 52 CAs have managed to fulfill all the Firm Commitments while the other 54 CAs have not met their Firm Commitments. Exploration Commitment in the Exploration CAs throughout 2014 and it Obstacles Obstacles in fulfilling the Firm Commitment Internal PSC Contractor (change of operator, readiness of management, sharing risk, financial issues, etc.) 63 45% Out of 139 Exploration CAs, 106 CAs are 3 years 52 Permits & Community Social (land use permits, forestry permits, environmental permits, social issues) Subsurface complexity 18 13% 21 15% Equipment & Supports Availability (unavailability of rig/vessel, consortium rig schedule, procurement process) 15 11% Exploitation CAs (not fulfilling their Firm Commitment) Operational (remote area, explosive warehouses, preparation process, drilling technical issues) Special Issues 8 6% 7 5% G&G Data Availability 4 3% 33 CAs are less than three years 52 CAs have fulfilled their Firm Commitment 54 CAs have not fulfilled their Firm Commitment 41 CAs are under Termination Process Procurement Process 2 2% Note: 1 CA may have more than 1 obstacles

27 25 Assessment on PSC Contractors whose Exploration CAs have entered their 3 rd contract year and thereafter (excluding CAs undergoing termination process) is carried out based on the following criteria, including minimum (basic/mandatory) assessment and exploration proof (advance) assessment. Based on the results of the assessment, on 7 May 2014 SKK Migas awarded the following PSC Contractors who experienced a change of status or performance improvement, as follows: Three CAs received the Green Category: Kutai CA (KrisEnergy Kutei B.V.), Pasir CA (Pasir Petroleum Resources Ltd.), and North Sokang CA (North Sokang Energy Ltd.) Seven CAs received the Blue Category: Titan CA (AWE (Titan) NZ Ltd.), Baronang CA (Lundin Baronang B.V.), Batu Gajah CA (Ranhill Jambi Inc. Pte. Ltd.), Cendrawasih CA (Black Gold Cendrawasih LLC.), Gurita CA (Lundin Gurita B.V.), Kerapu CA (Pearl Oil (Tachylyte) Ltd.), and South Sokang CA (Lundin South Sokang B.V.) Assessment on the Performance of Exploration Commitment for Conventional Oil and Gas Exploration CAs in July 2014 Status December 2014 Status Black Red Pink Blue Green Gold Black: performed G&G study or not performed activities of Firm Commitment by any means. Red: performed a small part of the Firm Commitment Pink: performed major parts of the Firm Commitment Blue: fulfilled all Firm Commitments Green: includes the Blue Category and has discovered hydrocarbon under technical discovery category Gold: includes the Blue Category and there is a discovery with potentially economical reserves

28 26 SKK Migas Performance 2014 Unconventional Oil and Gas At the end of 2014, there were 55 Unconventional Oil and Gas Exploration CAs consisting of 54 CBM CAs and 1 MNK-Shale Hydrocarbon CA. Out of 54 CBM CAs, 5 CAs were undergoing termination process. Out of 50 Active Unconventional Oil and Gas Exploration CAs, 32 CBM CAs have entered their 3 rd contract year or more and are not in the termination process, hence the fulfillment of their Firm Commitment can be assessed. The fulfillment of Firm Commitment for the 32 CBM CAs indicates that 5 CBM CAs have managed to fulfill all of their Firm Commitments and 27 CBM CAs have not yet met their Firm Commitments. Unconventional Exploration CAs in 2014 December 2014 Status Sumatera Kalimantan Total Active Non Active Termination Process Sumatera Kalimantan Total 23 CAs 32 CAs 55 CAs Active Non Termination Total Active Process Fulfillment of Firm Commitment for Unconventional Oil and Gas FIRM COMMITMENT CAs CONTRACT NUMBER OF FULFILLED NOT TERMINATION YEAR BLOCKS FULFILLED PROCESS > 6 years = 6 years > 3 years < 3 years Total

29 27 EXPLOITATION COMMITMENT In 2014, one exploration CA obtained approval for a first plan of development (POD) from the Minister of EMR, namely Bulu CA. With that approval, the number of exploitation CAs increased to 81 CAs. In addition, SKK Migas also issued approvals for other PODs, consisting of 13 PODs, 23 plan of further development (POFDs) dan 5 put on production (POPs). The estimate of investment and operating cost disbursed by PSC Contractors, oil and gas production, as well as the state revenue from those PODs are as follows: Estimated Operating Cost, Investment and State Revenue CUMMULATIVE PRODUCTION OPERATING COST AND INVESTMENT (US$ Million) from the POD approval in 2014 Oil (Million Bbl) Investment 5, Gas (Bscf) State Revenue (US$ Million) 1, Operating Cost Operating Cost 3, ASR Cost Total Investment & Operating Cost 3, ,417.09

30 28 SKK Migas Performance 2014 During , SKK Migas approved 390 PODs, POFDs and POPs. Out of all the approvals, there are 337 approvals for POD, POFD and POP that are active with an estimated cumulative production of oil and condensates of 3, MMbo and 51, Bscf. The remaining 53 PODs and POPs are not active due to changes in the development status or due to uneconomical condition to be worked on by the PSC Contractors. Oil and Gas Production Distribution based on POD/POFD/POP POD/POFD/POP Distribution Oil 27% POP 26% POD I 10% Production Distribution for 337 PODs Gas 73% POD Distribution POFD 23% POD 41% POD/POFD/POP Approval Profile (POD) POD Cumulative POD

31 29 Additional Oil Production Profile based on POD/POFD/ POP Approval (MMbo) 1, Additional Gas Production Profile based on POD/POFD/ POP Approval (Bscf) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, , , , , , , , , , , Phase of Work under the POD/POFD/POP Approval Start of PSC Exploration POD I/POD/ POFD (Start of FEED) Start of EPCI Onstream Exploitation 0 I II III Production BOPD IV Pre POD (Pre FEED) 63 POD 26 POD 53 POD Final Gov. Cash Flow, MMUS$ PSC Cash Flow, MMUS$ 195 POD End of PSC

32 30 SKK Migas Performance 2014 D. PSC Contractors Investment in Exploitation & Exploration Stages PSC CONTRACTORS ACTUAL INVESTMENT IN THE EXPLOITATION STAGE The actual investment (expenditures) in the upstream oil and gas industry for exploitation CAs within the last six years showed an increase. This describes that the investment climate in the upstream oil and gas sector is still conducive, and has good prospect. In 2014, investment in the upstream oil and gas sector reached US$19.27 billion. The amount of investment used to finance exploitation activities amounted to US$1.69 billion, well development activities amounted to US$4.09 billion, production activities amounted to US$12.26 billion and administration activities amounted to US$1.24 billion. Of that composition, it is identified that majority of the investment in upstream oil and gas sector is allocated for production and development activities reaching US$16.35 billion or 85% of the total upstream oil and gas investment. Investment of PSC Contractors in Exploitation Stage (Million US$) Total Exploration Development Production Administration 25,000 20,000 15,000 10,000 5, ,535 5% 23% 65% 6% 11,854 6% 21% 66% 7% 13,986 5% 22% 66% 7% 16, % 20% 64% 6% 18,993 10% 22% 62% 6% 19,275 9% 21% 64% 6% *) Source of data: Consolidated Financial Statement of PSC Contractors (unaudited) Impact of the increase in upstream oil and gas investment in the exploitation areas did not only affect the profile of production and portfolio of oil and gas reserves, but also affected the process of increasing national capacity in domestic oil and gas supporting industry. PSC CONTRACTORS ACTUAL INVESTMENT IN THE EXPLORATION STAGE Investment in exploration CAs to discover new oil and gas reserves experienced increase from time to time, however since 2012 to 2014, investments suffered a decline compared to the previous years. The increase of exploration activities is very important for it will generate positive impact to the development prospect of upstream oil and gas in the future, and will maintain the availability of energy for the next generations.

33 31 Until end of 2014, the cumulative value of investment in exploration blocks reached US$1.11 billion or only 47% of the target as set out in the Revision of Work Program & Budget (WP&B) The low realization of the PSC Contractors investment in exploration stage was due to operational constraints both external and internal of the PSC Contractors. External constraints are, among others, overlapping-land with plantation, industrial forest and protected forest areas, bureaucracy in the permits process related to other institutions, public concerns about the impacts of oil and gas activities and community claims for corporate social responsibility, and the availability of drilling rigs which are very limited. Supports from all institutions and relevant parties are required to solve those problems. Meanwhile, internal constraints of the PSC Contractors are, for example, financial problem and technicaloperational issues occurred during the course of surveys, drilling, work-over and well maintenance. Other challenges dealt with was the discovery of new reserves where at present majority of oil and gas reserves are situated in the eastern part of Indonesia, mainly in the deep-water. Exploration activities in this area are encountering tough challenges as technically they are more difficult to carry out. The exploration and exploitation activities in deep-water also require considerable costs. Therefore, it is necessary to provide investors with attractive incentives in order to attract them making their investment in the deep-water exploration. Good infrastructure supports are also required to help the acceleration of activities considering that the exploration locations are situated in remote areas. SKK Migas continues to provide understanding to the stakeholders of the importance of exploration activities because without exploration, new reserves for oil as well as gas will not be discovered. Investment of PSC Contractors 2,500 2,120 in Exploration Stage (Million US$) 2,000 1,661 Total Exploration Administration 1,500 1, ,464 1,850 1,356 1,204 1,391 1,242 1, *) Source of data: Consolidated Financial Statement of PSC Contractors (unaudited)

34 32 SKK Migas Performance 2014 E. Oil and Gas Lifting / Production Activities OIL AND GAS PRODUCTION PROFILE On a national scale, at present Indonesia s oil and gas production is still dominated by gas, and for the last several years is above the national oil production and this condition is predicted to continue for several years ahead. National Oil and Gas Production Profile (Mboepd) 1, Built-up Phase Dominated by Oil Peak 1977 Plateau Phase Peak 1995 Declined 10-12% Dominated by Gas Declined 3-5% GAS OIL

35 33 At this time, the national rate of production for natural gas is far above the oil production and without new discovery of reserves, total oil and gas production is projected to continue declining to 300 thousand barrels of oil equivalent per day (boepd) in National Oil and Gas Production Profile (Mboepd) History Forecast 1, ,400 1,200 1,077 1,

36 34 SKK Migas Performance 2014 Below is brief information of the PODs approved in 2014: Bangko Field PT. Chevron Pacific Indonesia The Formation Target is Duri Sand with Original Oil In Place (OOIP) at 1,458 MMbo, Cumulative Production at 585 MMbo (40% OOIP per January 2014) and increase of oil reserve at 2.15 MMbo. Duri Sand Formation Depth Structure Map of Bangko Field Sangatta Field Pertamina EP The Formation Target is Balikpapan with OOIP at MMstb and Cumulative Production (existing and incremental) at 55.5 MMstb (economic limit). Balikpapan Formation M4, M8 Depth Structure Map of Sangatta Field

37 35 Lapangan Subang Pertamina EP The Formation Target is Duri Sand with OOIP at 2,125 Tscf and additional Gas Reserve at Bscf (November September 2034). Parigi Carbonate Formation Depth Structure Map of Subang Field Mutiara Pamaguan Field Vico The Formation Target is Balikpapan with OOIP at 321 MMbo and Original Gas In Place (OGIP) at 1,638 Bscf. Meanwhile, Cumulative Production (per June 2013) oil oil is 83 MMbo and gas is 1,043 Bscf and pursuant to the approval for POD, it is estimated that at present there is an increase of oil reserve at 3.4 MMbo and gas reserve at 159 Bscf. Balikpapan Formation Depth Structure Map of Mutiara Pamaguan Field

38 36 SKK Migas Performance 2014 OIL AND GAS ACTUAL PRODUCTION Until December 31 st, 2014, Indonesia s oil and gas actual production reached 2,288 million barrel of oil equivalent per day (MMboepd). This achievement was measured from the average oil and condensate production at 789 thousand barrels per day (Mbopd), while the gas production at 8,218 million cubic feet per day (MMscfd). The decline rate of oil production in 2014 is higher than the previous year. In 2013, the decline rate of production was 4.1% while the decline rate of production in 2014 became 4.3%. This containment to the decline rate of production can be achieved mainly because of the acceleration in the drilling of development wells at the potential blocks which are operated by PT Chevron Pacific Indonesia (CPI) in North Sumatra, Total E&P in East Kalimantan and Pertamina Hulu Energi (mainly in West Madura Offshore (WMO) CA in East Java and Onshore North West Java (ONWJ) in West Java. Oil and Condensate Production Performance in 2014 (Mbopd) Production Revised State Budget 2014 Original WP&B 2014 Revised WP&B 2014 = 818 Mbopd = 804 Mbopd = 805 Mbopd PRODUCTION 2014 YTD Production to 31 Des = 789 Mbopd Achievement to State Budget = 96.48% Achievement to State WP&B Rev. = 98.03% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1. January 24 th, Leak of SBM manifold (PHE ONWJ and PEP) - Disconnection of mooring Hawser 21 on FSO Cinta Natomas to SBM (Jan 21 st, 2014) (JOB PPEJ, PEP, MCL) - PHE ONWJ: MMF AX/BX comp. shutdown for repair of MMC-BX fin fan cooler & NUI/ well-shutdown due to severe weather 2. May 10 th, MCL: planned shutdown for EPF maintenance 3. June 18 th, CNOOC: leak of PLEM, postponed replacement of SBM, FSO hull Sulawesi tank top 4. September 1 st, PHE ONWJ: Echo TAR & shut-in well 2 uniform due to the leak of subsealine 12 Marine Oil Line UWJ-B1C - BP: Train 2 tripped - COPI: LGC Belida tripped 5. October 4 th, CPI: high pressure in HCT line - TEPI: high inventory in Badak LNG - PHE ONWJ: blackout in Zulu 6. December 23 rd, CPI: congeal occurred 7. December 25 th, JOBPTJM: maintenance, total shutdown

39 37 Gas Production Performance in 2014 (MMscfd) PRODUCTION 2014 YTD Production to 31 Dec = 8,147 MMscfd Achievement to WP&B = 98.12% 10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 WP&B Production Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1. January 13 rd, BP Berau: Shutdown in trains 1 & 2 for load shedding due to the trip in 2 Steam Generator Turbine 2. January 30 th, BP Berau: unplanned shutdown in Train 2 3. May 13 th, TEPI: shut-in in Tunu TCP comp. A, GTS-B, BX, F, GX for preventive maintenance of Turbo comp. B 4. July 28 th, Low gas demand during Idul Fitri season 5. October 13 th -16 th, BP Tangguh: the decline of production was due to the delay of LNG Towuti in unloading LNG at the customer 6. December 7 th, BP: Train 1 shutdown due to short circuit 7. December25 th, JOBPTJM: maintenance, total shutdown

40 38 SKK Migas Performance 2014 ACTUAL OIL LIFTING AND GAS DISTRIBUTION Oil and gas lifting shall mean oil and/or gas production which has been sold. To facilitate the administrative adjustment in the Ministry of Finance which has recorded the state revenue from upstream oil and gas on a cash basis principle, the calculation of Indonesia oil and gas lifting in the current year is made by applying the period of last year December to the current year November. The actual oil lifting in average for the period of December 2013 to November 2014 was Mbopd or 96.5% of the Revised State Budget 2014 targeted at 818 Mbopd. The realization of gas distribution in the same period was 6,732 MMscfd of the Revised State Budget 2014 with total target at 6,854 MMscfd or equal to 1,224 Mboepd. Oil and Gas Lifting for the Period of Dec 2013 Nov 2014 *) The figures of Lifting to December are the figures of Operational ERC per Dec 30 th, 2014 *) The figures of production and stock of January-November are the reconciled figures *) The figures of terminal stock include the dead stock of 3,500 4,500 Mbbl 1, Production/Lifting (Mbopd) 5 Stock (MMbbls) Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Average Oil Lifting per 31 Dec Gas Lifting per 31 Dec Terminal outlook per 30 Dec

41 39 F. Distribution of Oil and Gas Revenues The state revenue from upstream oil and gas sector for the period of January 1 st to December 31 st, 2014 was US$26.76 billion consisting of revenue from oil in the amount of US$15.58 billion and revenue from oil in the amount of US$11.18 billion, or equal to 95% of the state revenue targeted in the Revised WP&B 2014 at US$28.15 billion. However, compared to the state revenue targeted in the Revised State Budget 2014 of US$29.67 billion, the realization of state revenue has managed to reach 96%. That state revenue is the value for the period of December 2013 to November The amount of the state revenue is 53% of the gross revenue produced by upstream oil and gas industry. SKK Migas continues to control the operating costs in order to achieve the most effective and efficient level so as to to provide an optimum contribution to the State Revenue from upstream oil and gas sector. OIL Crude Price (US$99.63/bbl) GOI Share US$15.58 billion Cost Recovery US$9.29 billion Total GOI Share US$26.66 billion (Including Cost of LNG Sale US$1.80 billion) Oil Lifting 784 Mbopd Oil Revenue (US$27.43 billion) Contractor Share US$2.57 billion Total Cost Recovery PSC US$16.30 billion Gas Lifting 1,140 Mboepd (eq BBtud) Gas Revenue (US$25.60 billion) GAS GOI Share US$11.18 billion Gas Price (US$9.64/MMBtu) Cost Recovery US$7.02 billion Contractor Share US$5.59 billion Total Net Contractor Share US$8.16 billion

42 40 SKK Migas Performance 2014 The increase of state revenue is also sustained with the increase of PSC Contractor revenue. During the period of , the average ratio of state revenue (total GOI take) to gross revenue was 55%, while the average ratio of PSC Contractor revenue (net contractor take) to the gross revenue was 16%; this indicated that the Return on Investment (ROI) in Indonesia remains attractive. This increase was influenced by the continuous improvements in the cost recovery control process that was able to maintain the ratio between cost recovery and gross revenue within the range of 25 32% with the progressive increase of new investments in various upstream oil and gas projects. Revenue Distribution in Upstream Oil and Gas Sector 90,000 80, Cost Recovery GOI Share Contractor Share Gross Revenue WAP ICP 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Million US$ ,227 62, ,162 10,322 46,689 35,910 7,608 5,694 19,950 26,523 35,920 35,436 10,109 11,763 15,216 15,537 57,578 53,028 9,416 8,164 31,159 26,762 15,918 16, US$/bbl

43 41 G. Efficiency of Cost Recovery In 2014, the investment from upstream oil and gas sector as targeted in the Revised WP&B reached US$24.68 billion. The expenditure will be used to support production activities at approximately 58%. The other expenditure will be used to finance drilling activities (19%), to perform exploration activities (15%), to pay administrative cost and to manage any other supporting activities (7%). The expenditure used to support production activities covers field development, workover and well service, development and maintenance of production facilities, and payment of obligation to reserve abandonment and site restoration (ASR) fund. Realization of the investment disbursed by the upstream oil and gas industry in 2014 was US$20.38 billion. Meanwhile, the cost recoverable to PSC Contractors in the same period reached US$16.30 billion. The increase in the cost recoverable was unavoidable although a significant amount of saving had been made. This was due to the new development projects, production facilities repairs required to be immediately carried out, and a great deal of efforts undertaken to contain the declining rate of production. The saving was made, among others, through the strategy of joint procurement, and optimizing joint use of assets applied mainly to PSC Contractors having adjacent areas. The policy for years has proven to produce significant savings. JOINT PROCUREMENT Savings from joint procurement held by PSC Contractors either for goods or services in 2014 reached US$85 million from the target of US$150 million. Savings from Joint Procurement (Million US$) Target Achieved

44 42 SKK Migas Performance 2014 OPTIMIZING ASSET UTILIZATION Optimizing asset utilization in upstream oil and gas business activities through the transfer of assets inter-psc Contractors throughout 2014 reached US$50 million from the target of US$35 million. Optimizing Asset Utilization (Million US$) Target Achieved In 2014, the Minister of Finance issued an approval for four joint-uses of assets between PSC Contractor and other party (not a company engaged in upstream oil and gas business sector/ non-psc Contractor). This joint use of asset is under a lease-mechanism between the Government and other party that produces state revenue/ non-tax state income (PNBP) in the amount of Rp billion. Joint Use of Assets between PSC Contractors and Other Parties (Non-Upstream) Total Proposals 2014 : 4 Total Approvals 2014 : 4 State Revenue (PNBP) : Rp ,00 (including 2013 *Rp ,00) Nonpayable (Potential) : p ,00 US$4,817, Total Estimate : Rp ,00

45 43

46 44 Efforts to Increase Production and Reserves CHAPTER II To increase oil and gas production and reserves, ideally every barrel of oil and gas equivalent produced shall immediately be replaced by the barrel of oil and gas equivalent discovered, hence requiring more intensive exploration programs.

47 45 Efforts to Increase Production and Reserves

48 46 Efforts to Increase Production and Reserves A. Realization of New Projects In 2014, a total of 15 upstream oil and gas development projects were onstream and can generate additional installed oil and gas production facilities capacity of approximately 9,100 bopd and 1,200 MMscfd Onstream Oil and Gas Development Projects 2014 No Project PSC Contractors Installed Production Capacity Onstream Oil (bpod) Gas (MMscfd) 1 Peluang Santos (Madura Offshore) Q1 2 Peciko 7B - New Platform Total E&P Indonesie 4, Q1 3 Bekapai Phase 2A Total E&P Indonesie 1, Q1 4 Sisi Nubi 2B - New Platform Total E&P Indonesie Q1 5 South Belut ConocoPhillips Indonesia 1, Q2 6 Proyek Pengembangan Gas Jawa (PPGJ) Gundih Pertamina EP Q2 7 Peciko 7C - Extension Platform Total E&P Indonesie Q2 8 SES Gas Banuwati-K CNOOC SES Q3 9 SES Gas Asti-A CNOOC SES Q4 10 SES Gas Mila-A CNOOC SES Q4 11 Ridho (Odira) Odira Energy Karang Agung 2, Q4 12 Kuat Gas Sales Facility EMP Malacca Strait Q4 13 Naga Premier Oil Natuna Sea Q4 14 Bayan Gas Production Facilities Manhattan Kalimantan Investment Q4 15 Kerendan Gas Plant Salamander Energy (Bangkanai) Q4

49 47 B. Efforts to Increase Oil and Gas Production and Reserves Efforts to increase production and reserves made since the beginning of 2014 have shown results, among others displayed by a slower decline rate of production compared to the previous year. The efforts to increase production and reserves are as follows: EXPLORATION ACTIVITIES In relation to the extensification efforts to increase oil and gas production and reserves, SKK Migas continues to encourage PSC Contractors to carry out exploration activities, both in exploration and exploitation blocks. The activities carried out at this stage cover geophysical survey and exploration well drilling. In CBM block, the exploration activities consist of geophysical surveys, CBM drilling activities (exploration & corehole) and dewatering.

50 48 Efforts to Increase Production and Reserves Conventional Oil and Gas Survey and Seismic In 2014, PSC Contractors carried out nine 2D seismic surveys covering 5,060 km and eleven 3D seismic surveys covering 4,570 km2 and eight non-seismic activities. Conventional Oil and Gas Survey and Seismic Actual Activities of Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Onshore Survey Transition Survey Offshore Survey Actual (20) Target (52) The non-achieved surveys were due to the following reasons: 2D Seismic: 3D Seismic: Plan VS Actual of Surveys 2D Seismic 3D Seismic Non Seismik Total Exploration & Exploitation CA Activities Km Activities Km 2 Activities Activities WP&B , , Actual , ,

51 49 Exploratory Well Drilling In 2014, the drilling of 64 exploratory wells was carried out. This comprised of 40 onshore wells and 24 offshore wells. Actual Conventional Oil and Gas Exploratory Well Drilling Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Offshore Onshore Total Actual (64) Target (88) Constraints on Conventional Exploration Activities in Land Acquisition Permits Procurement Process Schedule of Rig 7 Site Preparation Subsurface Evaluation

52 50 Efforts to Increase Production and Reserves Unconventional Oil and Gas In 2014, PSC Contractors carried out the drilling of 15 CBM wells, comprising of 11 exploration + corehole wells, 3 dewatering wells and 1 corehole well. In addition, there were 4 re-entry activities for radial jetting purposes, bringing the total realization to 19 activities. Actual CBM Exploration Drilling CBM Well CBM Well re-entry 0 Jan Feb Mar Apr May Jun Jul Augt Sept Oct Nov Dec Total Actual (15) Target (46) Constraints on the Implementation of Unconventional Oil and Gas CA Exploration Commitment per-area 2014 Main constraints in Sumatra area are equipment, land acquisition, and Permits. Meanwhile, main constraints in Kalimantan area are equipment, land acquisition, permits, and infrastructure Equipment Land Permits Infrastructure Internal PSC G&G Social Identified from* Sumatera 22 CAs Kalimantan 28 CAs Total 50 CAs *) 1 CA might have more than one constraint Operational

53 51 EXPLOITATION ACTIVITIES Production Well Drilling (Exploitation Well) In order to reduce the decline rate of production, SKK Migas encourages PSC Contractors to drill development wells (infill wells) as well as to perform work over/well service. In 2014, the drilling of 1,245 exploitation wells was carried out or less than the 1,324 wells prescribed in the plan of development; this is due to issues in land acquisition, permits process, and rig availability. Actual Exploitation Drilling Number of Well Offshore Onshore Jan Feb Mar Apr May Jun Jul Augt Sept Oct Nov Dec Total ,058 Actual (1,245) Target (1,324) The plan in accordance with the 2104 WP&B was for a total of 1,324 wells. The drilling of 1,245 wells was carried out by the end of the year (7 wells not included in the 2014 drilling program). The drilling of 86 wells could not be carried out due to issues related to rig schedule, land acquisition, environmental permits, procurement of the rig, and site preparation. Constraints on Development Drilling Remark: One well might have more than one constraint Land Acquisition Permit Procurement Process Rig Schedule Site Preparation Subsurface Evaluation

54 52 Efforts to Increase Production and Reserves Workover & Well Service Well service was performed through the workover of 1,019 wells out of the 1,102 wells planned. This was due to the scale of priority in the use of workover rig and the barriers in obtaining HO (Hiring Ordinase) permits, explosives licenses, as well as the workover rig procurement, which prevented the execution of the activities in 2014 Actual Workover Total Offshore Onshore Jan Feb Mar Apr May Jun Jul Agt Sep Oct Nov Dec Total Actual (1,019) Target (1,102)

55 53 On the other hand, a total of 30,267 well services were performed out of the 32,657 planned. Actual Well Service Total Offshore Onshore Jan Feb Mar Apr May Jun Jul Augt Sep Oct Nov Dec Total 2,603 2,644 2,558 2,368 2,986 2,303 2,277 2,559 2,593 2,688 2,582 2,106 30, ,535 1,778 1,913 1,672 1,596 2,082 1,562 1,487 1,757 1,696 1,782 1,904 1,503 20,732 Actual (30,267) Target (32,657)

56 54 Efforts to Increase Production and Reserves ENHANCED OIL RECOVERY ACTIVITIES In order to increase oil reserves and production, SKK Migas encourages PSC Contractors to carry out EOR activities, both in the study and the Field Trial/Pilot stages. There were four Field Trials/ Pilots in 2014, with one of them starting in Kaji Surfactant Polymer, Medco E & P The Surfactant Polymer Flooding Pilot Project in Kaji Field was completed in May This EOR Method was proven to be successfully implemented and additional recovery of 106,996 bo was achieved from the initial forecast of 104,620 bo. Kaji EOR Pilot Production Performance Baseline Waterflood Actual Pilot EOR Forecast Jan Feb Mar Apr May Jun Jul Augt Sep Oct Nov Dec Jan14 Feb14 Mar14 Apr14 Tanjung Surfaktan, Pertamina EP The Tanjung Surfactant Flooding Pilot Project in Tanjung Field was completed in March This EOR Method was less successfully implemented and the additional recovery obtained only amounted to 18 Mstb from the initial forecast of 169 Mstb. Field Trial (T-027, T-062R, T-121) Start Injection January Size-up pump work 40 Surf Flood (SimRes) Surf Flood (Actual) Baseline 20 0 Start production Single Layer C Jan-2012 Jan-2013 Jan-2014 Jan-2015

57 55 Widuri Polymer, CNOOC The Polymer Flooding Pilot Project in Widuri Field is ongoing and is expected to complete in The estimated additional recovery until the end of the project is 234 Mstb for unrisked cases and 160 Mstb for risked cases. Old Rimau Electrical EOR, Medco E&P The Electrical EOR Field Trial in the Old Rimau CA is ongoing and is expected to complete in The field trial was conducted in a number of wells and is currently ongoing and the results are being evaluated. Process EEOR (Electrically Enhanced Oil Recovery) CATHODE (-) ANODE (+) 5 Oil around the well-bore is heated, oil becomes less viscous and can be pumped to the surface 4 Electrokinetics causes fluids in the reservoir to migrate to the cathode (-) creating a drive mechanism 1 Electricity is sent from the power supply to the surface anode (+) and the well-bore cathode (-) 3 Cold cracking begins, breaking down the heavy oil s molecular structure 2 Electric current is passed through the ground towards the anode (+)

58 56 Efforts to Increase Production and Reserves C. Sharing Knowledge Forums In order to increase national oil and gas production, SKK Migas and PSC Contractors held knowledge sharing forums, to also develop a spirit of partnership to answer more diverse challenges. Through this forum, the expectation is that a solution related to the technical challenges to increase production can be discovered. Below are some forums and workshops conducted by SKK Migas throughout 2014: Media Meeting, Jakarta, May 20 th, 2014 To disseminate information regarding the upstream oil and gas activities to the mass media, the SKK Migas Public Affairs Division and PSC Contractors held the 2014 Media Meeting on May 20 th, 2014 in Jakarta. More than 160 reporters from all over Indonesia consisting of editors in chief, editors, and heads of bureaus participated in this event. The meeting comprised of panel discussions with the theme of the oil and gas production sharing fund, the investment challenges in the upstream oil and gas industry in Indonesia, and the role of the regions in the oil and gas industry. In that occasion, materials providing an overview of the upstream oil and gas industry in Indonesia were also presented. The materials presented in the meeting offered a more thorough understanding about the oil and gas industry for the editorial staff. The materials also provided an illustration for the participants about the energy crisis threat and the burden to the state s balance sheet if the efforts of the PSC Contractors to discover new reserve and to increase production are hindered by permit issues and rejection actions in the regions.

59 57 2 Land Forum and Working Meeting, Bali, September 11 st - 12 th, 2014 The Land Forum and Working Meeting was held in Bali, September 11 st - 12 th, It was attended by 190 participants from SKKMigas, PSC Contractors, National Land Authority (BPN) and representatives from the regional government. Following the promulgation of Law No. 2 of 2012 on Land Acquisition for the Development of Public Interest, there were still differing interpretations regarding some of the provisions. Therefore, a shared perception and follow-up based on the provisions are required. Certification is one of the important issues in the land acquisition process, which eventually will be a state asset. This working meeting was followed up by establishing a Memorandum of Understanding with the regional offices of BPN located in the upstream oil and gas operational areas, in order to perform a collective certification of the land being used by the PSC Contractors. 3 The 2014 SKKMigas Contractors National Public Relations Working Meeting, Yogyakarta, September 25 th -26 th, 2014 The stakeholders need to have a thorough understanding about the upstream oil and gas industry to ensure the smooth running of oil and gas activities and to avoid running into too many problems. In this event, the public relations function holds an important role in providing proper and correct explanation regarding the oil and gas operation to the stakeholders, both at the central level and in the regions. A thorough understanding should also be provided to the public, so the community can understand the activities performed in the exploration and production. Through proper understanding, the public can provide support for the smooth running of the upstream oil and gas industry. There are numerous dynamics in the upstream oil and gas industry that are still not properly explained to the community, the public relations staff must be able to rise to the challenge, considering that the upstream oil and gas industry still holds an enormous appeal. With the dynamics and challenges in the provisions to achieve the targets set by the government in the upcoming years, all public relations staff needs to consolidate to develop communication strategy and to design effective public relation program for the upstream oil and gas industry in order to achieve the national goal. Public relations are a function that bridges the resolution of operation issues. The public relations function must be able to accelerate and open the path for technical function activity. Therefore, credible public relation human resources that can quickly read the situation and condition, and strategize appropriately are required. In relation to this, the 2014 SKKMigas Contractors National Public Relations Working Meeting was held in Yogyakarta on September 25 th -26 th, 2014.

60 58 Efforts to Increase Production and Reserves Security Summit, Bali, November 19 th - 20 th, 2014 To suppress the level of security threat, SKKMigas and PSC Contractors continue to synergize with the Indonesian National Armed Forces (TNI) and the Indonesian National Police (Polri) to find a comprehensive security strategy, among others, through the 2014 Security Summit held in Bali, on November. To date, the security cooperation that SKKMigas and Contractors have had with TNI and Polri for the offshore upstream oil and gas activities has proven to be relatively effective in suppressing security threats and disturbances. Based on SKKMigas data, until September 2014, 103 security disturbance cases were recorded, which includes theft of equipment, oil tapping, road blocking, demonstration, and the like. This number is significantly lower compared to 2013, where the number of security disturbances reached 863 cases. Although this number has decreased, SKKMigas continues to provide and improve security in the oil and gas operational areas. The spread of the oil and gas operational areas which covers armed conflict areas and areas bordering other countries makes the support of the Indonesian Army (TNI AD) necessary. This support is required to strengthen a strategic social environment in the form of a territorial development strengthening in the upstream oil and gas working area. The security support provided to the upstream oil and gas industry as a national vital object is very important to maintain the energy resilience and continuous revenue of the state. Integrated security between the security teams from PSC Contractors, SKKMigas, TNI and Polri will provide a positive effect in creating a sense of security and comfort for the employees and upstream oil and gas activities. A secure and comfortable working environment will enable the achievement of the maximum state targeted revenue. In this occasion, SKKMigas signed a Memorandum of Understanding with the TNI AD in relation to the Territorial Development Strengthening in the Upstream Oil and Gas Industry Working Areas. SKKMigas also signed an extension of the cooperation with the Indonesian Navy (TNI AL) which has been ongoing since 2005 in regards to organizing security and supervision for the offshore upstream oil and gas industry activities in the Indonesian national marine jurisdiction.

61 Forestry Forum and Work Meeting, Yogyakarta, November 24 th - 25 th, 2014 SKK Migas continues to coordinate with the Ministry of Environment and Forestry to overcome the issues in obtaining permits for the usage of forest area for the upstream oil and gas industry. This coordination was established so that the permit issues that often impede the exploration and production activities could be resolved immediately. For this reason, SKKMigas organized the 2014 Forestry Forum and Working Meeting in Yogyakarta on November The upstream oil and gas activities closely relate to the forests and environment surrounding the community. Referring to the Minister of Forestry Regulation Number P.16/Menhut-II/2014, the Ministry of Environment and Forestry has performed improvements to the management of Permits for Borrow-to-Use of Forest Areas (IPPKH) related to the upstream oil and gas industry, which covers the simplification of the application settlement mechanism and simplifying the requirements. Based on the data of the Ministry of Environment and Forestry, up to November 2014, a total of 143 Permits have been issued for the exploration stage covering 922,708 Ha and 65 Permits for the production operation stage covering an area of 3,083 Ha. As for the principal approval stage for the production operation, the Ministry of Environment and Forestry has issued 102 Permits covering an area of 5,996 Ha. 6 FOREK 2014, Jakarta, December 3 rd - 5 th, 2014 FOREK 2014 was held in Jakarta on December 3 rd -5 th, 2014 with the theme of Together We will Improve Accountability by Improving the Upstream Oil and Gas Industry Governance. FOREK 2014 was conducted in the form of a round table discussion (participated by leaders of the PSC Contractors and SKKMigas) and group discussion, by dividing the participants into four discussion groups that will discuss the primary economics and financial issues in the upstream oil and gas industry, which consist of accounting policies and online FQR; WP&B, FQR, and AFE manual revision, Work Procedure Manual (PTK) 051 evaluation about Penangguhan Pembebanan Biaya Operasi (Deferment on Cost Recovery) and audit issues; and asset accounting provisions. The discussion that took place in the forum strengthens the previous series of discussions performed by SKKMigas and Contractors in the previous months. The result of this discussion will be turned into a manual and procedures which are expected to be finalized in early The upstream oil and gas industry cannot avoid the high expectation for transparency from the public. Therefore, all the industry actors are expected to synergize with SKKMigas to strengthen the internal audit, risk analysis, and compliance functions. The coordination and communication between SKKMigas and PSC Contractors with the Ministry of Environment and forestry regarding the use of land in the forest area is required to prevent any permit issues for the upstream oil and gas industry during exploration or production.

62 60 Efforts to Increase Production and Reserves D. Cooperation with other Institutions The success of upstream oil and gas activities is strongly influenced by the support of stakeholders. Therefore, in 2014, SKK Migas signed several cooperation agreements with other institutions as follows: 1 Cooperation Agreement of SKK Migas NCB Program, Jakarta, January 16 th, 2014 Synergy in the performance of the NCB program delivers positive outcome, both for SKK Migas as well as for the educational and training institutions. This Cooperation Agreement involved four universities, namely Institut Teknologi Bandung (ITB), Universitas Padjajaran (Unpad), Universitas Indonesia (UI), Universitas Gadjah Mada (UGM), and Dinas Psikologi Angkatan Darat (Indonesian Army Psychology Service Office). The signing of the Cooperation Agreement will be followed up with further discussions concerning a tailor-made soft skill and technical skill curriculum. According to the plan, the pilot project in the field of Geology, Geophysics and Petroleum Industry competencies will recruit a total of thirty (30) program participants. In addition to creating a competent workforce, NCB Program also brings the oil and gas industry closer to universities and helps increase the potential of the national capacity. The execution of this program stems from a Memorandum of Understanding signed on May 9t h, 2012 by BPMIGAS with its seven partner institutions, namely ITB, Unpad, UI, UGM, Universitas Trisakti, UPN, and Pusdiklat (educational and training center). 2 Memorandum of Understanding on the Development of Integrated Oil and Gas Information System, Jakarta, June 13 rd, 2014 The Ministry of Finance and SKK Migas signed a Memorandum of Understanding (MoU) on the development of an integrated oil and gas information system. The idea of developing an integrated information system was generated from the spirit to present state revenues deriving from oil and gas upstream business activities in a short period of time with a high degree of accuracy. The data shown from the upstream oil and gas sector were not only related to the planning, but they also covered the monitoring of the realization. The development of the oil and gas revenue information system aims at improving the accuracy and accountability of decisions made by leaders. Such decisions are made based on the analysis of this application so as to facilitate the budgeting of the oil and gas revenues in the state budget. The oil and gas revenue information system is expected to increase the efficiency of time in presenting the reports. SKK Migas will follow-up to the Memorandum of Understanding by formulating the technical guidelines for the development of the system. The system built and developed by SKK Migas and the Ministry of Finance will also be integrated. SKK Migas will prepare for the development of this system with the target reaching the prototyping system stage. By 2015, it is expected that the oil and gas revenue information system will have been established and will have covered all the required data. With the establishment of the state revenue information system, oil and gas data, especially regarding the lifting and the price of crude oil can be provided accurately and in real time.

63 61 3 Memorandum of Understanding on Education and Training for Upstream Oil and Gas Business Activities, Jakarta, October 23 rd, 2014 A thorough understanding of the upstream oil and gas business activities needs to be provided to all layers of society, including the law enforcement officers. In contrast, employees in the upstream oil and gas sector also need to have an understanding of the juridical aspects in the upstream oil and gas industry as well as the applicable laws and regulations. For the reason of these needs, SKK Migas and Board of Education and Training (Diklat) of the Prosecution Office of the Republic of Indonesia established collaboration to provide education and training related to the upstream oil and gas business activities by signing a Memorandum of Understanding. Based on that memorandum of understanding, SKK Migas and the Board of Diklat may cooperate to conduct education and training as well as to organize workshops and seminars. SKK Migas provides education and training on upstream oil and gas business activities to prosecutors and the prosecutor candidates within the Prosecution Office of the Republic of Indonesia. Meanwhile, the Board of Diklat provides a thorough legal understanding to employees of SKK Migas and PSC Contractors. 4 Memorandum of Understanding on the Granting of Scholarships for the Law Faculty s Students, Jakarta, December 5 th, 2014 Graduates of the Law Faculty play an important role in the upstream oil and gas business activities. Their role is needed to carry out all activities of the upstream oil and gas sector running in line with the prevailing laws and regulations. As a form of support to form qualified law faculty graduates, SKK Migas established cooperation with Universitas Gadjah Mada (UGM) Yogyakarta as outlined in the Memorandum of Understanding on the granting of scholarships for the Law Faculty s students. The signing of this MoU is the implementation of the signing of the Memorandum of Understanding between SKK Migas and the Law Faculty which was executed about a year ago. Although SKK Migas is not a party involved in this MoU, it will ensure that the program held by the Faculty of Law together with the KKS Contractors will be useful for all parties. Such cooperation is expected to continue, not only with UGM, but also with other universities, particularly those located in the operation areas of the PSC Contractors. The increased cooperation of PSC Contractors other universities will add to the number of scholarship recipients. Increasing the SKK Migas employees legal awareness is very important to maintain and improve the capability of the organization. Armed with a thorough understanding of the law, the performance of SKK Migas is expected to further improve in monitoring and controlling the PSC Contractors operatorship. As an organization, SKK Migas is required to work harder, especially to meet the needs of the national energy resources from the oil and gas sector, while on the other hand remains upholding the transparency.

64 62 Efforts to Increase Production and Reserves E. Challenges in the Achievement of Production Target 2014 Opportunity Loss Constraints on the Achievement of Production Target Opportunity Loss bopd MMscfd Dusruptions in the Production Facilities and Offtaker 11, (55 thousand boepd) The postponed Onstream Project Schedule 1. Banyu Urip Full Scale MCL ( 2,480 bopd) 2. Bukit Tua Field Petronas (3,235 bopd) 3. Kerendan Field Salamander Energy Bengkanai (81 bopd) 4. Ridho Field Odira Karang Agung (997 bopd) 5. Bayan Field Manhattan Kalimantan Indonesia (82 bopd) 6. Sampoerna Field Tiara Bumi Persada (530 bopd), Start Up November 12 th, ,400 Operational Issues Lower Gas Absorption by Buyer where the absorption was only 4,268 MMscfd from the contract volume of 5,802 MMscfd 1,390 (219 thousand boepd) TOTAL 27,200 1,530 (274 thousand boepd)

65 63 Efforts performed Challenges in the Achievement of Production Target Efforts performed Resolving operational disruption issues production Reducing Unplanned Shutdown Hadling more significant decline rate Resolving land acquisition and permits problems Level Agreement (SLA) with respect to permits and licenses Handling procurement problems

66 64 Major Projects Since 2014, a total of 85 ongoing I. POTRET KINERJA SKK MIGAS 2014 upstream oil and gas projects have been undertaken. Of those numbers, there are five large-scale projects running, namely Banyu Urip Project, Jangkrik and Jangkrik NE Projects, Tangguh Train-3 Project, IDD Project and Abadi Project. CHAPTER III

67 65 Major Projects

68 66 Major Projects Chapter III Major Projects In 2014, SKK Migas supervised the implementation of 85 upstream oil and gas projects (including five large-scale projects); there are 17 projects in the completion of construction stage (EPC), 30 projects in the construction stage (EPC), 21 projects in EPC tender stage, seven projects in the front-end-engineering-design stage (FEED), two projects in the FEED tender stage, and eight projects in the plan of development (POD) discussion stage. Addition to the Installed Capacity of Upstream Oil and Gas Production Facilities Thousand boepd Peciko-7 Pelikan Matindok MDA - MBH Jambaran Tiung Biru - Cendana YY Field SP Field Sisi Nubi 2B GG Field Senoro Sumpal Bison FSB Field KLD Field South Belut South Mahakam-3 Donggi PHE-44 Iguana KILO Field Tangguh Train-3 PPGJ Gundih Bukit Tua Bangka - IDD Jangkrik OO-OC-OX Field Naga Kepodang PHE- 7/12/29/48 Block A Jambu Aye Utara North Duri Dev. 13 CPP-2, PHE-24 Ande Ande Lumut Pondok Makmur MBD

69 67 Of those 85 upstream oil and gas projects, there are five upstream oil and gas project categorized as large-scale projects and specifically supervised by SKK Migas as they have enormous value and considerable scope of work and have significant impact of production. Those five large-scale projects are Banyu Urip Project in Bojonegoro, East Java by Mobil Cepu Ltd. (MCL); Indonesia Deep Water (IDD) Project in the Makassar Strait, East Kalimantan by Chevron Indonesia Company (Cico); Abadi Project in the Arafura Sea Maluku by Inpex Masela; Jangkrik Project in the Makassar Strait, East Kalimantan by Eni Muara Bakau B.V.; and Tangguh Train-3 Project in Bintuni, West Papua by BP Berau Ltd. To support the implementation of those projects, SKK Migas has formed a project acceleration unit (UPP) for each large-scale project.

70 68 A. Major Projects Banyu Urip Project of ExxonMobil Cepu Ltd. Banyu Urip Project is the Banyu Urip Field development project of Cepu CA in the Regency of Bojonegoro, East Java, with capacity of 165 Mbopd undertaken by ExxonMobil Cepu Ltd. (EMCL). The implementation of Banyu Urip Project is divided into five parts of EPC (Engineering, Procurement, and Construction), which are: a. EPC1: Central Processing Facility (CPF) and Wellpads. b. EPC2: onshore oil pipeline of 72 km. c. EPC3: offshore oil pipeline of 23 km including the Mooring Tower. d. EPC4: construction of floating storage offloading (FSO) Gagak Rimang, which constitutes a conversion of MT Chios tanker having capacity of approximately 2 million barrels. e. EPC5: infrastructure facilities, including construction of raw water basin (basin for injection water) having capacity of 2.75 million m 3. In addition to those five EPCs, this project will also drill 42 wells. It is expected that the ready for start-up (RFSU) status for central production facility (CPF) will be achieved in June 2015 (first oil) and the full scale production will be accomplished in September 2015, hence an addition to the national oil production will be made in a full capacity of 165 Mbopd. Some technical and financial issues have caused delay in the completion of Banyu Urip Project. Until end of 2014, the overall progress of Banyu Urip Project achieved 93.8% (actual) out of 97.2% (cumulative recovery plan) and 100% (contractual baseline). All construction works of EPC1 have reached 90.3%, and the commissioning work is on-going to date. The onshore EPC2 pipe-laying has been completed since August 2014 and now is ready to operate. The offshore pipe-laying from Pantai Palang to Mooring Tower has been completed and connected to FSO Gagak Rimang since October The offshore commissioning of FSO Gagak Rimang and the completion of some punch lists are still on going. Meanwhile, for EPC5, all main construction works to support the first oil, which are River Water Intake, Flyover and Raw Water Basin, have been completed. At present, the flyover has been operated and the raw-water filling is scheduled in early April 2015.

71 69 Banyu Urip Project Location EPC Schedule for Banyu Urip Production Facilities EPC Initial Duration (Month) Additional Duration (Month) EPC All materials arrived at the location Target Start-Up Forecast Q Train A Train B Closed Out EPC Pipe ready to operate Closed Out EPC Target forecast completed Nov 30 th, 2014 Closed Out EPC Target forecast completed Dec 2014 Closed Out EPC Target forecast completed Mar 31 st, 2014 Closed Out Cumulative number of production wells ready to support the first oil and full scale Drilling Rig DS08 Rig DS

72 70 Major Projects B. Indonesian Deepwater Development Project of Chevron Indonesia Co. The Indonesian Deepwater Development (IDD) Project is a development project of four CAs located in Makassar Strait which are Ganal CA, Rapak CA, Makassar Strait CA and Muara Bakau CA (unitization). In those four CAs, there are five fields which will be developed namely Bangka Field, Gehem Field, Gendalo Field, Maha Field and Gandang Field. The production from the wells drilled in those five fields is planned to flow in an integrated fashion through two hubs of floating production unit (FPU) i.e. Gehem Hub and Gendalo Hub, and one subsea tie-back at West Seno. Gas from FPU will be flowed to LNG Bontang Plant for further process to be LNG. IDD Project Location in Makassar Strait Malaysia Kalimantan Bontang Makassar PSC Bangka West Seno Bangka Santan Merah Besar Rapak PSC Ranggas Gehem Hub Gehem Muara Bakau PSC Ganal PSC Makassar PSC Gendalo Gandang Gendalo Hub Maha POD Field

73 71 IDD Project Development Scheme East Kalimantan Pipeline System Santan Terminal Bontang LNG Plant Existing Pipe of West Seno West Seno Hub (Existing) 1015m WD Senipah Terminal Gehem Export Pipe Gehem Hub Gehem FPU 1785m WD Bangka Field 975m WD Gendalo Hub Gendalo FPU 1170m WD Lapangan Maha 1080m WD Lapangan Gendalo 1570m WD Pipa Ekspor Gandalo Lapangan Gandang 1718m WD Lapangan Gehem 1785m WD KUTEI BASIN Bangka Field is expected to produce approximately120 MMscfd of gas and 4 Mbopd of condensate. The development of Bangka Field until end of 2014 was still in line with the schedule, and the first gas production (gas onstream) is estimated to be in the first quarter of Gehem Hub is expected to produce approximately 420 MMscfd of gas and approximately 27 Mbopd of condensate. Meanwhile, it is expected to achieve gas production of 700 MMscfd and condensate production of 20 Mbopd from Gendalo Hub. At present, the Development of Gendalo Gehem Fields are delayed for it has not obtained the necessary approval. The delayed development has made the IDD Project to be uneconomical (in the context of POD-1 scenario) in connection with: a. the declining volume that may be produced within the term of the existing PSC resulting from the delay in the implementation due to several agreements with various relevant parties have not been finalized. b. the increase of investment costs resulting from the change of market price. c. the drop of gas price due to the weak market of LNG Asia in the future. Chevron Indonesia Co. will make Revision of POD-1 for IDD which covers the following matters: a. Additional reserves in the form of secondary reservoir from Maha and Gandang Fields and additional reserves from Ranggas Field (excluding POD-1 IDD that has been previously approved) from two development wells. b. Adjustment to the terms and conditions for the extension of the contract for Makassar Strait CA c. Extension for the contracts for Ganal and Rapak CAs

74 72 C. Major Projects Abadi Project of Inpex Masela Ltd. Abadi Project is a development project of Abadi gas field by Inpex Masela Ltd. in Arafura Sea (sea depth between m) carried out to fulfill the domestic and export demands. Abadi gas field is located in Masela CA under the PSC signed by the Government on November 16 th, 1998 and in force until November 15 th, Abadi Gas Field Masela CA Banda Sea Aru Island Tanimbar Island Abadi Field Saumlaki Indonesia Babar-Selaru PSC Dili Timor-Leste Greater Sunrise Evans Shoal Barossa Buffalo Caldita Evans Shoal South Arafura Sea Australia Elang Kakatua Bayu Undan

75 73 The Plan of Development (POD-1) for Abadi Field was approved by the Government under the Letter of the Minister of EMR No. 7577/12/MEM.M/2010 dated December 6 th, 2010 with LNG production of 2.5 Mtpa and condensate production of 8,400 bopd during the period of 30 years (with the estimated recoverable gas reserves of 4.6 tcf and condensate reserves of MMbo). Total investment is estimated to reach US$4.99 billion, while the operating cost is estimated to reach $4.01 billion. The scope of Abadi gas field development project covers drilling of six production wells at the maximum, subsea development, construction of floating LNG processing facility (FLNG), and construction of supporting facility/ logistic shore base (LSB). As the implementation of POD-1, the Abadi Project during 2014 is as follows: a. The review on FEED SURF was completed on January 29 th, b. Environment (AMDAL) permit was issued on June 24 th, c. The review on FEED F LNG 2.5 Mtpa was completed on September 19 th, From the outcome of FEED, it is identified that: 1) The estimated total investment and operating cost has exceeded the value stated in the approval for POD-1. 2) The production facility construction period is longer than the estimate (approval of POD-1). 3) The plan of production is estimated to postpone from 2018 to d. The work of FEED logistic shore base (LSB) commenced in September 21 st, 2014 and the completion is scheduled in March e. Drilling of three delineation wells (Abadi #8, #9, and #10) was completed with outcomes indicating additional gas reserves in a significant volume. At present, a certification process is being undertaking by Lemigas, and it is estimated to complete in March f. The land acquisition process commenced for LSB location. Considering the potential of additional significant reserves and the outcome of FEED which concludes that the development of Abadi Project with production capacity of FLNG 2.5 Mtpa is not economical for the contractor, Inpex Masela submitted draft of proposal to revise POD-1 on November 24 th, The proposed revision of POD-1 focused on the scenario of Abadi field development with bigger production capacity, where the Final Investment Decision (FID) is planned in 2018, and the First Gas is expected in Currently, discussion on the draft of POD-1 revision is on-going pending to the certification on the certainty/ magnitude of the reserves by Lemigas.

76 74 D. Major Projects Tangguh Train-3 Project of BP Berau Ltd. The Plan of Development for Tangguh Train-3 (POD-2) was approved by the Government on November 29 th, This is a further development after Train-1 and Train-2 (POD-1) that have been operated since 2009 and are located in Bintuni, West Papua. The construction of Train-3 is purposed to develop and produce and monetize gas reserves prior to the expiration of the PSC in Tangguh Train-3 is estimated to produce in 2020, but it is expected to accelerate the production in line with the approval for the Plan of Development (POD) in A total of 40% from the Train-3 production is allocation for domestic market which constitutes one of the biggest commitments for Indonesia market. The remaining production of Tangguh Train-3 is allocated for Asia market in order to derive benefits to the extent possible. The benefits from Tangguh Expansion Program are: a. to make available the basic need and to support the welfare of local people; b. to support the plan of development of the Indonesia Government for Papua area; and c. to supply gas for electricity in West Papua area. In the middle of 2014, the preparation of the development of Tangguh LNG Plant has commenced which is marked with the initial/preparatory work such as camp, infrastructure, gas production facility, and pipeline. On the other hand, the work of FEED for Tangguh Train-3 LNG plant carried out by two consortiums (CSTS and RJK) has started since December 9 th & 11 th, This FEED is expected to complete at the end of 2015 and then followed with the development of EPCI in 2016.

77 75 Location of Tangguh Plant Berau CA, Wiriagar CA and Muturi CA Wiriagar CA LNG Tangguh Plant Location Berau CA Muturi CA Location of Tangguh Train-3 Train-3

78 76 Major Projects E. Jangkrik Project of Eni Muara Bakau Jangkrik ( JKK ) and Jangkrik North East ( JNE ) Fields are located off the coast of Makassar Strait around 70km north-east of Delta Mahakam - Makassar Strait with the depth of approximately m from the sea surface. The JKK Field gas development began with the discovery of JKK-1 well in 2009, JKK-2, JKK-2 dir and JKK-3 in Meanwhile, the development of JNE Field began with the discovery of JNE-1 and JNE-2 wells in The Plan of Development (POD-1) for JKK Field was approved in November 2011 with cummulative gas sold at 913 Bscf, plateau for 5 years 9 months. POD-2 for JNE Field obtained the approval in January 2013, with cumulative gas production at Bscf. The second development of such field is predicted to produce gas of 300 MMscfd from JKK Field and 150 MMscfd from JNE Field. The development of JKK and JNE Fields is carried out in integrated manner in a project named Jangkrik Complex Project. Location of Muara Bakau CA Kerindingan Melahin West Seno Serang Semberah Attaka Merah Besar Santan Badak Lampaka Nilam Tumi Tambori Pamaguan Sisi Mutiara Hamdil Nubi Samboja Bekapai Peciko Jangkrik Jangkrik NE eni VICO Total Chevron Malaysia Kalimantan

79 77 Gas production from Jangkrik Complex will be delivered to Bontang LNG Plant by utilizing the Peciko Bontang 42 Gas Pipe of East Kalimantan starting from the tie-in location at KM-7, through the sharing scheme with other existing PSC Contractors namely Total E&P Indonesie, VICO Indonesia and Chevron Indonesia Co. Condensate production from Jangkrik Complex will be delivered to Senipah Tank by utilizing 12 Condensate Pipe of Handil-Senipah under sharing scheme with Total E&P Indonesie. Jangking Complex Project covered three major works for the production facility consisting of: a. EPCI 1 - Floating Production Unit ( FPU ), b. EPCI 2 - Risers & Flowlines Installation ( RFI ) including onshore pipeline & ORF c. EP3 - Subsea Production System ( SPS ) and several pacakages to support drilling and completion of development wells.. Jangkrik Pipeline and EKS (East Kalimantan System) Pipeline System 1. Gas: Tie-in at Km. 7 with 42 pipe of Peciko 2. Condensate: Tie-in at Km. 7 with 12 pipe of Handil-Senipah 3. New 20 pipeline from Km. 7 to Km (PK6.3) 15 Km 4. Tie-in 20 Jangkrik branch with 20 existing pipe of Handil- Nilam in Km DOMESTIC (PETROCHEMICAL) PECIKO JANGKRIK 4 Condi FPU 12 HDL -PCK Liquid KM gas from FPU 12 from SAPI MANDIL 15km 20 extension SAPI KM POK - POK NILAM Proyek IDD BADAK EXPORT MANIFOLD 36 (850 MMscfd) 36 (850 MMscfd) 42 (1.125 MMscfd) 42 (1.125 MMscfd) SANTAN BONTANG LNG LNG Design of Jangkrik Complex Development Project Main Design Data MMscfd (gas) - 4,100 bopd (condensate) - 1,000 bwpd (water) Subsea 500m FPU 120m Products are delivered to East Kalimantan System JANGKRIK MAIN JANGKRIK NE Production Flowlines Umbilicals Condensate Export Export Gas Gas Rigid Line

80 78 Major Projects The overall progress of Jangkrik Complex project until December 2014 has reached 14.4%. Meanwhile, gas production from Jangkrik Complex Field is estimated to take place in the first quarter of The gas will be utilized in greater part to meet domestic demand either as industrial materials or as fuel. Schedule for Jangkrik Complex Development Project Master Schedule Jangkrik Complex Project Development Q Q4 Q1 Q2 Q3 Q4 Permits and Licences Commercial Agreements for Facilities Sharing Agreements with Buyers Agreement with TEPI, CICO Key Terms/HoA LNG SPA for domestic demand with Pertamina Hull/LQ and Topsides CA LLIs PO Placement Starting Topside and LQ Fabrication PPU - ECM1 Contract Shore, commissioning, towing, mooring, hook up and commisioning PPI - ECM2 Contract Detailed Engineering, Procurement and Fabrication CA Flexible Pipes PO Rigid Pipes PO (12 & 4 SMLS) Rigid Pipes PO (24 LSAW) Offshore Campaign and SURF Hook Up 2 nd Tie-in Pipeline Extension SPS-EP3 Contract LOI Drilling and Completion Drilling Activities Exploration Well Rig Mob JKK-4DIR Started Completion Activities D&C Schedule Exploratory Well Drilling Drilling Exploratory Well Merakes JKK & JKNE Development PO Placement for Completion LLIs Cluster 2 (JKK 5Dir, 4Dir) Cluster 3 (JKK 6Dir, 7Dir) C2 C3 X-Mas Tree available Completion LLIs Delivery JNE 8Dir (Stand Alone) NE 8 Cluster JKNE 1 (JNE 5Dir, 6Dir) C NE 1 Cluster 1 (JKK 8Dir, 9Dir, 10Dir) C 1 JNE 7Dir (Stand Alone)

81 79 Q1 Q Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Land Certification FPU Flag available FPU Class available POA & Bontang Utilization Agreement LNG SPAs Start Hull fabrication Hull Launching Hull Integration Yard Onshore Commissioning completed First gas Q Fabrication Start Rigid Pipe Delivery Flex Pipe Delivery Engineering Start Construction LOI Pipeline Installation Start Ready for Commissioning X-Mas Tree Delivery 1 st Batch JKK Main Well ready JNE Well ready Completion Equipment JKK Main Well ready JNE Well ready Assumption : Delivery FPU 35 months Project Start-up: Q (Deterministic Schedule) Completion C 2 All Jangkrik Wells completed C 3 First Gas Feb 2017 (Deterministic) NE 8 C NE 1 C 1 NE 7 NE 7 Drilling Completion Drilling Completed

82 80 F. Major Projects Senoro Project & Matindok Project of Job Pertamina- Medco Tomori Sulawesi & PT Pertamina EP Senoro Project JOB Pertamina - MedcoTomori Sulawesi Senoro Field is located in di eastern part of Senoro-Toili CA which was discovered through the exploratory wells of Senoro-1 in April The POD for Senoro Field was approved inmay 16 th, The change of reserves and allocation of gas as decided by the government has made changes in the estimated production that leads to the change in the capacity of the production facilities used as the basis of the POD revision approved on May 9 th, Based on the POD Revision-1, gas under the following allocation will be produced: Allocation (MMscfd) Senoro Cendanapura Total PT PAU PT PLN PT DSLNG Total Net production of gas from Senoro Field is 310 MMscfd. The scope of work in POD covers, among others, Production Facilities consisting of: a. Central Processing Plant (CPP) with capacity of 2 x 155 MMscfd b. 30 Gas Pipe of 27 km from CPP Senoro to ke LNG Plant of PT. Donggi-Senoro LNG (DSLNG) c. Condensate Jetty Terminal d. Supporting facilities The construction of such Production Facilities has been carried out since September 17 th, In O2014, the flow of commissioning gas to DS-LNG Plant through early start-up facility unit at the location of SNO-5 has been carried out with average flow of 3 MMscfd. The development of Senoro Project managed to achieve 93.5$ of progress in December Senoro Production Facilities are estimated to commence its production (onstream) in June 2015.

83 81 Senoron Porject Location Map Trunkline of Matindok - TIP-2 1 KM x 16 Trunkline of Senoro - DSLNG 27 KM x 30 DSLNG Trunkline of Donggi - TIP-1 35 KM x 16 CPP Matindok CPP Senoro CPP Donggi Well Central Processing Plant (CPP) Flowline Matindok Flowline Donggi JOB Pipeline PPOM Pipeline Matindok Area Project PT Pertamina EP The development of this Matindok Gas Field is based on gas discovery in Matindok Area at Donggi, Matindok, Maleoraja, Minahaki, Sukamaju and Mentawa Fields with total reserves of ~ 0.7 Tcf (GCA certification of EUR) and based on the needs to utilize gas from Matindok Area for LNG and Power Plant. POD for Matindok Area (Donggi, Matindok, Maleoraja and Minahaki Gas Fields for gas supply to LNG Plant) was approved by BPMIGAS on December 24 th, The reserves in Matindok field were added to Bcf and gas production from Area Matindok became MMscfd. The change was covered under POD Revision-1 approved by BPMIGAS on September 22 nd, Gas Supply Scheme from Matindok and Sonoro Areas Donggi Minahaki Pertamina EP DONGGI CPP 50MMscfd 335MMscfd Gas supply Area Matindok: 85 MMscfd Area Senoro: 250 MMscfd LNG PLANT DSLNG Senoro JOB P-MTS SENORO CPP 310MMscfd TIP 1 25MMscfd Electricity, gas supply Area Matindok: 20 MMscfd Area Senoro: 5 MMscfd PLN Cendanapura Maleoraja Pertamina EP MATINDOK CPP 55MMscfd PJBG 55MMscfd Fertilizer, gas supply Area Senoro: 55 MMscfd FERTILIZER PT Panca Amara Utama TIP 2 Matindok Upstream Oil and Gas Downstream Oil and Gas

84 82 Major Projects From the scheme above, it can be illustrated that the objective of the development of this field is to monetize Gas from Matindok Area of 105 MMscfd (net) with allocation of gas sale as follows: a. As a gas supplier of 85 MMscfd jointly with gas from Senoro Area JOB PMTS of 250 MMscfd to the LNG plant of PT. DSLNG (buyer) b. As a gas supplier of 20 MMscfd jointly with gas from Senoro Area JOB PMTS of 5 MMscfd ke PLN (buyer) For the purpose above, at present production facilities are constructed in Matindok Area with allocation based on the following areas: a. Production Facility of Donggi Field (CPP Donggi) with design capacity of approximately 60 MMscfd to process gas from Donggi and Minahaki Fields. b. Production Facility of Matindok Field (CPP Matindok) with design capacity of approximately 65 MMscfd to process gas from Matindok and Maleoraja Fields. Production from Matindok Area (Donggi and Matindok) may reach the peak of 116 MMscfd for 12 years, and subsequently the production will continue declining until reaching the abandonment pressure after 20 years of production. The condensate production will began in conjunction with gas production and will reach the peak of 643 bopd. Gas production from Matindok Area is incorporated with gas from Senoro Area at the Tie-in Point 1 (TIP 1) dan Tie-in Point 2 (TIP 2). The condensate produced from both production facilities will be flowed to the production facilities of Senoro Fied operated by JOB Pertamina Medco Tomori. The construction of Donggi Project managed to achieve 43.7% of progress in December The production facility of Donggi Project is estimated to commence its onstream in the second quarter of Meanwhile, the construction of Matindok Project in December 2014 achieved 28.3% of progress. The first gas onstream for the production facility of Matindok Project will be in Q Matindok Gas Development Project The Project Scope of Work 1. Construction of Gas Plant with the following design capacity: 2. Construction of Trunkline Matindok Wells Maleoraja Wells Product/Test Line BS-GPF MATINDOK m MMscfd sales gas TIP 2 BS-GPF DONGGI SALES GATE m MMscfd Sales gas TIP 1 30 gas Pipeline km - 4 Condensate Line 30 gas Pipeline 325 MMscfd LNG PLANT Donggi & Minahaki Wells CPP SENORO 310 MMscfd

85 83 G. Bukit Tua Project of Petronas Carigali Ketapang II Ltd. The Bukit Tua Field is located offshore East Java about approximately 30km north off Madura Island and around 90 km east off Surabaya City. The Bukit Tua Field is the first field to be developed in Ketapang CA. The POD for Bukit Tua Field of Ketapang CA was approved in July Ketapang II CA has been operated by Petronas Carigali Ketapang (II) Ltd since July 25 th,2008. The development scenario of Bukit Tua Field is to produce oil and gas in an integrated fashion. Of the hydrocarbon reserves in Bukit Tua field, it is expected to produce approximately million barrels of oil and 70 Bcf of associated gas. The Bukit Tua Field itself is estimated to produce 20 Mbopd of oil and 50 MMscfd of associated gas. Scope of the integrated oil and gas production facility development includes the construction of one WHP (Wellhead Platform), drilling of five production wells and four contingency wells, construction of oil and gas processing facilities on the FPSO, and installation of production pipe from FPSO to ORF in Gresik through WHP. Gas production is flowed from the onshore receiving facility (ORF) in Gresik and allocated for domestic buyers for the needs of power plant in Gresik, East Java. At the end of 2014, the progress of Bukit Tua Project achieved 72.3%. This project is expected to generate benefits to the state with first oil production in July 2015 and the peak of production is expected to reach in December 2015 of 20 Mbopd. Bukit Tua Field Development Scheme Wellhead Platform (WHP): - 9 slots - 3 Legged Jacket - 57m water-depth FPSO or Converted FPSO: - Crude Processing and Storage Facility - Gas Compressor - Spread Moored - TEG Dehydration Infield Flow Line (700m): - 1x8 liquid - 1x16 wet gas - 1x12 export gas 12 Gas Flowline arround 110 km Garis Pantai PLEM Flexible Risers: - 1x8 liquid line - 1x16 wet gas line - 1x12 export gas line - Tandem offloading - Export through Floating Hose Gas Sale Onshore Receiving Facilities (ORF): Inlet Separator and Sales Gas Metering Package

86 In order to maximize the I. POTRET KINERJA SKK MIGAS 2014 benefits of upstream oil and gas industry for the nation and the country, SKK Migas and PSC Contractors always tried to optimize the use of local content for all of their activities. CHAPTER IV

87 Empowering National Capacity

88 86 Empowering National Capacity A. Optimization of Crude Oil Production for Domestic Refineries In 2014, SKK Migas carried out the following commercialization activities: a. The signing of several agreements related to the Election in Kind commercialization scheme as follows: No Date Agreement 1 April 3 rd,2014 Decree on the Appointment of the State Entitlement Condensate Seller for Tuban Refinery to PT Pertamina (Persero) 2 September 24 th, 2014 Seller Appointment Agreement (SAA) of the State Entitlement Condensate for Tuban Refinery between SKK Migas and PT Pertamina (Persero) 3 October 8 th, 2014 Decree on the Appointment of the State Entitlement s Crude (MMKBN) Seller to PT Pertamina (Persero) 4 December 31 st, 2014 SAA of the State Entitlement s Crude (MMKBN) between SKK Migas and PT Pertamina (Persero) b. Several Elect Not To Take in Kind procedures have been completed for the Elect Not To Take In Kind scheme. This agreement provides for any matters that are not yet set in the PSC. c. Three formulas of temporary Indonesia Crude Price (ICP) had been determined, among others, for Sampoerna Crude Oil (MM), Banyu Urip MM and MM Tiara Bumi MM. Furthermore, the ICP formula for nine other crude oils will be discussed further in 2015 d. Realization of Crude Oil and Condensate lifting during the period of January to December 2014 was MMbo with a value of US $ billion. e. Realization of the government s actual lifting was MMbo, and the Government Entitlement portion of the Crude Oil and Condensate in 2014 was MMbo hence cumulatively the State has an over lifting of 0.3 MMbo. f. During January - December 2014, the average production of Crude Oil & Condensate was 789 MBOPD, with an average lifting of 787 MBOPD and total closing stock in December of 8.13 MMbo.

89 87 Realization of Crude Oil Lifting in % Domestic Lifting of the GOI Share Export Lifting of the GOI Share Domestic Lifting of the Contractor Share Export Lifting of the Contractor Share 52% 16% 1% The lifting of Crude Oil and Condensate from the GOI Share was used as much as possible to meet domestic refinery feed requirements. The realization of domestic lifting in 2014 was 67% of the total lifting, i.e. 52% by SKK Migas and 16% by Contractors. The domestic lifting of the Contractor Share was carried out through pipelines and lifting by vessel upon obtaining a sale and purchase agreement, mainly performed by PHE and PEP. The lifting of exports from the GOI Share was 1% of the total lifting of Crude Oil and Condensate; this is because the First Tranche Petroleum (FTP) was very small and the commercialization was carried out by the PSC Contractor and/or Pertamina could not absorb this. The lifting of exports from the Contractor Share was 31% of the total lifting because none of sale and purchase agreement was made with Pertamina. SKK Migas through a shipcoord meeting and export coordinating meeting (Export Forum) continued to encourage and urge the PSC Contractors to carry out a Business to Business negotiation with Pertamina in order to meet Pertamina s refinery feed requirements.. In accordance with A0, the total lifting of Crude Oil and Condensate during the period of January - December 2014 was MMbo with a value of US $ billion.

90 88 B. Empowering National Capacity Increasing Gas Supply to Meet Domestic Demands The average supply of gas for domestic consumption increased by 9% from 2003 through 2014, and since 2014, the utilization of gas for domestic needs could be significantly improved, even exceeding the volume of gas that was exported. Based on the data up to October 2014, a total of 4,479 MMSCFD of gas was allocated for domestic demands, exceeding the volume of exports, which amounted to 3,347 MMSCFD. In other words, the composition of domestic and export allocation are respectively 57% and 43%. However, the increase of gas allocation for domestic needs was still constrained by the lack of infrastructure in the downstream sector to receive the allocations of gas that had been provided. For example, the absorption of cargo from Tangguh that has been allocated for the FSRU Nusantara Regas was not yet maximized and FSRU Lampung had just started its operations. The limited capacity and pipeline interconnection also caused obstacles in maximizing the potential of national gas. Support from stakeholders is highly expected in order to increase the supply of gas through pipelines to meet the domestic demands. Increasing Gas Supply to meet Domestic Demands 5,000 4,500 4,000 4,397 4,416 4,202 4,008 3,820 3,775 3,681 4,336 4,078 3,631 3,774 3,785 BBtud 3,500 3,000 2,500 2,000 2,341 2,527 2,913 3,323 3,379 3,267 3,550 3,402 3,237 1,500 1, ,480 1,466 1,513 Export Domestic * Note: 2014 data are based on the average realization up to December 31 st, 2014

91 89 Natural Gas Utilization in % 3.61% 3.35% 14.23% 9.71% 18.76% Electricity Fertilizer Industry Oil Lifting City Gas Gas Fuel for Transportation Pipeline Gas Export Export LNG Domestic LNG Domestic LPG 13.60% 4.45% 0.02% 0.05% Note: 2014 data are based on the average realization up to December 31 st, 2014 Actual Distribution of Pipeline Gas for Domestic Demands in 2014 BBtud , , , , , , Electricity Fertilizer Industry Oil Lifting City Gas Gas Fuel for Transportation Pipeline Gas Export Realization in BBtud Total Contract + Gas Allocation (BBtud) The largest part of the domestic gas allocation is used for industrial purposes, electricity and fertilizer at an average 42.7% of the total allocation of gas. Domestic Gas Allocation 2014 Tcf Fertilizer Electricity Industry Total Note: 2014 data are based on the average realization up to December 31 st, 2014

92 90 Empowering National Capacity C. Utilization of Local Goods and Services To maximize the benefits of the upstream oil and gas industry for the nation, the upstream oil and gas industry always tried to optimize the use of local content for all of their activities. Throughout the year of 2014, the commitment for local content in the procurement of goods and services for the upstream oil and gas industry (including those conducted through the approval of SKK Migas and by the PSC Contractors themselves) reached 54% (cost basis) of the total value of the procurement of goods and services i.e. US $ 17,355 million. Local Content Growth of Oil and Gas Industry 20,000 18,000 16,000 14, % 90% 80% 70% Juta US$ 12,000 10,000 8,000 6,000 4,000 2,000 60% 50% 40% 30% 20% 10% 0 Services Goods % Local Content ,862 4,737 6,568 5,408 6,976 8,109 11,531 9,304 11, ,846 1,400 3,577 3,811 3,706 5,082 4,616 5,548 43% 54% 43% 49% 63% 61% 60% 57% 54% 0% Note: 2014 data are based on the average realization up to December 31 st, 2014 A number of local entrepreneurs have taken advantage of the upstream oil and gas business opportunities, including state-owned enterprises (BUMN), in the procurement of goods and services for the upstream oil and gas industry. In 2014, the value of the procurement of goods and services supplied by state-owned companies was US $ million, whereas since 2009 the procurement value reached US $ 3.63 billion

93 91 Goods/Services Procurement of the State Owned Enterprises 2010 to 2014 No State Owned Enterprises Cumulative Total until 2014 Value (Thousand US$) Local Content (%) 1 PT Pertamina (Persero) 1,823, % 2 PT Rekayasa Industri 750, % 3 PT Wijaya Karya (Persero) Tbk. 464, % 4 PT Elnusa 359, % 5 PT PAL Indonesia (Persero) 305, % 6 PT Adhi Karya (Persero) 110, % 1,800 7 PT Hutama Karya (Persero) 95, % 1,600 1, PT Surveyor Indonesia (Persero) 80, % 1,400 9 PT Asuransi Jasa Indonesia 79, % 10 PT Sucofindo (Persero) 33, % 1, PT Biro Klasifikasi Indonesia (Persero) PT Dahana (Persero) 9, , % 92.27% 1, PT Pembangunan Perumahan Tbk. 6, % PT Pelayaran Nasional Indonesia (Persero) 3, % PT Telekomunikasi Indonesia (Persero) Tbk. 3, % Total 4,131, % PT Rekayasa Industri, PT Elnusa, and PT Pelayaran Nasional Indonesia are subsidiaries of the State Owned Enterprise/ Local Company January 16 th, 2015 Status

94 92 Empowering National Capacity D. Involvement of State/ Regional Owned Banks in the Oil and Gas Business Activities National banking has obtained capital strength from the policy on goods and services transaction payment that must be made through national banks. This policy started to apply in CONTRACTORS GOODS AND SERVICES PROCUREMENT Commitment value for the payment of annual transactions through State/Regional Owned Banks keeps increasing. The value in 2014 increased 33% compared to the value in Annual Transaction Commitment Transaction Value (Million US$) 14,000 12,000 10,000 8,000 6,000 4,000 3, , , , , , % 1.16% 1.11% 5.74% 16.85% 0.05% 0.03% 0.25% 74.77% 2, Bank Mandiri BNI BRI Bank Mandiri Syariah Bank Mandiri & BNI Bank Mandiri & BRI BNI & BRI Bank Muamalat BUMD January 16 th, 2015 Status Total April 2009 to December 2014: US$45 billion

95 93 ABANDONMENT AND SITE RESTORATION State Owned Banks also obtained capital strength from the deposit of Abandonment and Site Restoration (ASR) fund which reached US$635 million until December Cumulative ASR Fund (US$ Million) % 34.40% % Bank Rakyat Indonesia (US$211,964,681.01) Bank Mandiri (US$207,254,714.56) Bank Negara Indonesia (US$215,436,357.29) January 16 th, 2015 Status

96 94 Empowering National Capacity E. Management and Development of PSC Contractors Human Resources The total workforce of PSC Contractors in 2014 reached 24,628 employees consisting of 23,668 Nationals (TKI) and 960 Expatriates (TKA). National vs Expatriate Employees 35,000 30,000 29,330 32,292 1,900 1,700 25,243 25,682 25,000 21,835 23,668 23,753 23,328 1,500 20,000 1,300 15,000 1,069 1, , , ,000 TKI 700 TKA 5, Number of Nationals (TKI) and Expatriates (TKA) in the upstream oil and gas industry highly depends on the number and type of activities carried out in the relevant year. Expatriates Demographic based on Job Family from January December % 17.0% 14.6% 12,.6% 9.9% 9.5% % 3,.9% 1.9% 1,.9% % 0.8% 0,.6% 0.5% 0 Project G & G Leadership Reservoir Commercial Com & Dev. Devt D & C Engineering Operations Petroleum FC & A HSE SCM Legal

97 95 Job opportunities for Nationals (TKI) based on the Manpower Employment Plan (RPTK) have been approved for 36,443 positions in various fields and the opportunity to absorb manpower in this upstream oil and gas industry is still widely opened. Data Comparison of the National Employees towards the Approval for the Manpower Employment Plan (RPTK) 38,000 36,000 34,000 32,000 30,000 32,630 34,883 29,330 36,443 32,292 28,000 26, ,000 22,000 TKI RPTK TKI 20, The employment of Expatriate (TKA) is limited only to certain discipline where the expertise has not widely owned by the Nationals (TKI ) or as the investor s representative (leadership). The Expatriates (TKA) are required to posses at the minimum 10 years of experience. For the development of Nationals (TKI), SKK Migas encouraged PSC Contractors to conduct internationalization program (swapping & TDE).

98 96 Empowering National Capacity Within the last six years, SKK Migas (formerly known as BPMIGAS) has managed to obtain an unqualified opinion predicate to its financial statements. I. POTRET KINERJA SKK MIGAS 2014 CHAPTER V

99 97 Internal SKK Migas

100 98 A. Internal SKK Migas Audit Report from the Supreme Audit Board (BPK-RI) B. SKK Migas Financial Statement for the 2012 Fiscal Year (14 November to December 31 st, 2012) and the 2013 Fiscal Year, which constitutes the first Financial Statement of SKK Migas, has completely audited and obtained an unqualified opinion (WTP) predicate from the Supreme Audit Board of the Republic of Indonesia (BPK-RI). Hence, SKK Migas (formerly known as BPMIGAS) has managed to obtain an unqualified opinion (WTP) predicate to its financial statements within the last six years. Meanwhile, the audit of Financial Statement for the 2014 fiscal year will become the program of Sustainability Reporting Award SKK Migas received three Sustainability Reporting Awards 2014 from the National Centre for Sustainability Reporting (NCSR) for the Sustainability Report NCSR is a non-profit organization established in 2005 by five leading organizations, namely the Indonesian Institute of Management Accountant (IAMI), Forum for Corporate Governance in Indonesia (FCGI), National Committee on Governance Policy (KNKG), Indonesian Listed Company Association (AEI) and Indonesian-Netherlands Association (INA). Sustainability Report is a report containing company s or organization s performance in three aspects which are economic, environmental and social. Through this report, the company or organization demonstrates their accountability and transparency in the implementation of their social and environmental responsibilities, based on the reporting framework issued by the Global Reporting Initiative (GRI). The three awards received by SKK Migas are Commendation for First Year Report Award; Commendation for First Time G4 Report Award; and Commendation for The Most Impressive Government Institution Report. The jury team of the Sustainability Reporting Award 2014 shared their great appreciation on the participation of SKK Migas amid so much bad news hitting this institution. SKK Migas continues to make improvements in the supervisory aspect both to the PSC Contractors and internal SKK Migas. With respect to the supervision over the PSC Contractors, SKK Migas is currently developing an Integrated Operating System (SOT) which integrates all PSC Contractors data with SKK Migas system in a real time basis. Additionally, SKK Migas and 71 PSC Contractors also received award from the Coordinating Ministry for Economic Affairs for their participation in supporting Indonesia to be the compliant country with transparency principle or the Extractive Industries Transparency Initiative (EITI) Compliant Country. This success was considered by Ministry as a result of the outcome of various state institutions intensive cooperation, among others, SKK Migas and the PSC Contractors to disclose production rate and payment made to the state in order to achieve better transparency and accountability in the extractive industry sector.

101 99 C. Continuous Improvement in the Governance Aspect of the Organization IMPROVEMENT IN THE BUSINESS PROCESSES OF SKK MIGAS Following the dissolution of BPMIGAS into SKK Migas, one of the matters that are required to be completed immediately is the improvement in the Governance of SKK Migas as a whole, in terms of its regulations (Work Procedure Guidelines [PTK]), internal business processes, and the organization of SKK Migas. These matters should be in line with the good governance prevailing in this country such as Government Regulation No. 79 of 2010 or any other regulations, without compromising the quality of service to the stakeholders. Efficiency, effectiveness and bureaucratic reform are the main goals in the improvement of this governance. Improvement of the SKK Migas governance was officially declared at the end of 2013 and completed by the end of 2014, with the formation of a team to review the main business processes of SKK Migas, to evaluate and to provide recommendations for the improvement of the SKK Migas governance focused on AFE, WP & B, POD and Supply Chain Management. After the team had completed their review, SKK Migas conducted a review of all the current applicable PTK, especially those related to the compliance with the prevailing laws and regulations. The Reviewing Team of the Main Business Processes of SKK Migas carries out their duties for a fairly long period of time as they have to understand the business processes and the PTK from various points of view so as to avoid disputes or delays in operations at a later time. This discussion involves resource person from various parties, both from SKK Migas and other stakeholders such as the Ministry of Energy and Mineral Resources, the PSC Contractors, experts from the upstream oil and gas industry experts and oil and gas professional associations. Finally the review on the improvement in the Governance especially the Business Processes and Improvement to PTKs have been completed with satisfactory results with the identification of areas that must be improved in the business processes of AFE, WP&B, and POD by providing a better explanation of the above mentioned processes and eliminating any potential dispute. At this time, the results of this review are being standardized by updating the main business processes and improvement of the relevant SKK Migas PTK. SKK Migas has also identified areas that must be improved with the completion of the review in the improvements to 18 Revisions and 11 new proposals of of PTK.

102 100 Internal SKK Migas CLEAN AND FREE FROM CORRUPTION, COLLUSION AND NEPOTISM In 2014, in order to realize the upstream oil and gas industry that is clean and free from corruption, collusion and nepotism, SKK Migas has made some reforms and improvements of the governance continuously by implementing the corruption, fraud, and gratuity prevention programs. Some of these activities are as follows: Obligation to Submit State Official Wealth Report (LHKPN) As of the issuance of the Decision of the Chairman of SKK Migas Number KEP-0334/SKK0000/2013/S0 on the Obligation to Sumit State Official Wealth Report (LHKPN), the entire Management and Employees of SKK Migas are required to submit their LHKPN. In accordance with the requirements on LHKPN, every two years or every occurrence of promotion/ new position, the Management and Employees of SKK Migas are required to renew their LHKPN by filling out the LHKPN B Form Below is the table on the submission of LHKPN by the Management and Employees of SKK Migas throughout 2014: LHKPN Report Gratification Report Number of Report Number of Report Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Reporting Receipt of Gratification As of the issuance of the Decision of the Chairman of SKK Migas Number KEP-0334/SKK0000/2013/ S0 on the Obligation to Submit State Officials Wealth Report (LHKPN), the entire Management and Employees of SKK Migas are required to submit their LHKPN. In accordance with the requirements on LHKPN, every two years or every occurrence of promotion/ new position, the Management and Employees of SKK Migas are required to renew their LHKPN by filling out the LHKPN B Form Below is the graphics on the submission of LHKPN by the Management and Employees of SKK Migas throughout 2014: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

103 101 WHISTLE BLOWER SYSTEM (WBS) Since August 2013, SKK Migas has opened a channel for reporting violations or a Whistle Blower System (WBS) under the name of KAWAL SKK Migas. This channel can be used by both internal and external informers to report any alleged violations committed by the Management and/or Employees of SKK Migas. All reports will be verified by KAWAL SKK Migas to ensure their veracity. The criteria for alleged violations that can be reported are alleged corruptions, alleged violations of the Code of Ethics, alleged violations of the Gratuities Controlling Guidelines, alleged frauds, alleged conflicts of interest, alleged abuse, and alleged dissemination or divulgence of the institution s confidential information. Throughout 2014, the number of reports on violations received from the WBS KAWAL SKK Migas was 45 reports with details as follows: WBS Report In line with the scope Not in line with the scope 8 Number of Report Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec All reports that have been filed with KAWAL SKK Migas have been followed up on in accordance with the applicable regulations. IMPROVEMENT OF GOVERNANCE Great improvements are still needed to be made in SKK Migas with regard to good governance. Therefore, the Chief Executive Audit takes an active role in the process of improving good governance in SKK Migas. At the end of 2013, he facilitated a corruption risk assessment towards the management with the assistance of an independent consultant. As a continuation of the improvement to the SKK Migas good governance, in 2014 the Chief Executive Audit managed to perform six works with the assistance of an independent consultant, as follows: 1) Conducting corruption risk assessment on 28 business processes and their related functions 2) Conducting assessment on the corruption prevention programs 3) Providing coaching program for the operationalization of Digital Forensics 4) Revamping SKK Migas code of ethics 5) Developing Guidelines for the Due Diligence Business Partner 6) Updating the Enterprise Risk Assessment

104 102 Internal SKK Migas Some of the outcomes and recommendations obtained from those assessments are among others: Based on the corruption risk assessment on the 28 business processes and their related functions, some risks that need mitigation have been mapped It is necessary to develop anti-corruption policies, conduct corruption risk assessments, prepare guidelines for handling the corruption incidents and develop policies governing the procedures in carrying out surprise audits To hold outreach sessions and conduct evaluation in relation to fraud/corruption awareness To set up policies related to information security and hold outreach sessions of the policies To organize the transfer of knowledge in computer forensics To apply the know your business partner principle in the upstream oil and gas industry To conduct a self-assessment of anti-corruption in the upstream oil and gas industry To improve workflow, especially for the process of contract renewals and other approvals To optimize communication among relevant agencies in the upstream oil and gas industry To uphold the SKK Migas code of ethics To enforce the discipline in following the control system that has been established as well as the discipline in communicating electronically. OTHER ACTIVITIES In 2014, the Chief Executive Audit also provided assistance to Corruption Eradication Commission (KPK) Team on the seven issues that required study or were being reviewed by KPK as follows: 1) BP Tangguh Trains 1, 2, and 3 2) IDD Projecet 3) Insurance Consortium 4) FPM Contract in PT. Chevron Indonesia Pasific 5) FPU Contract in Kangean Energy Indonesia Ltd 6) Direct appointment process for the condensate sale of the state entitlement to PT. TPPI in ) Allocation of Natural Gas to the Local Government, in this case Badan Usaha Milik Daerah (Regional Owned Enterprise) or Perusahaan Daerah (Regional Company ) In addition, in order to introduce KAWAL SKK Migas programs, outreach sessions on KAWAL SKK Migas programs have been conducted together with the internalization of Gratuities Controlling Guidelines, which were attended by all of the Management and Employees of SKK Migas.

105 103 D. Communication and Information Technology System INFORMATION TECHNOLOGY PROJECT MANAGEMENT SKK Migas has implemented the initiative for the application of technology to support SKK Migas internal operations as well as the main duties and functions of supervising and controlling upstream oil and gas business activities, primarily within the PSC Contractors. The application of communication and information technologies by SKKMigas is intended as the tool to support and improve the performance, effectiveness, efficiency, and transparency of oil and gas business supervision and control by implementing an integrated strategic management information system, and as the provider of accurate, complete, and on-time information which will be used in the decision making process of SKKMigas management. Basic principle for the development and enhancement of the application system is an independent application system from the particular technology platforms that can be developed, improved, and operated in the most suitable environment to the organization effectively and efficiently. Several systems that have been implemented are as follows: Integrated Operating System (IOS) Basically the IOS is a strategic data/information exchange system of upstream oil and gas business activities between PSC Contractors and SKKMigas, where the data ate exchanged directly from the PSC Contractor operating system in order to improve the effectiveness, efficiency, and transparency of the reporting on upstream oil and gas operations. The characteristics of the IOS are system-to-system or machine-to-machine connections without manual data input process, and the data are directly collected from the source (database) located in the PSC Contractor through data mapping process. PSC Contractor XXX (Daily Production Monitoring) (A) SKK Migas Server of Production And Lifting Monitoring Application Hydrocarbon Accounting System (Policy-Driven Security) ProdML (D) VPN (B) (B) ProdML (E) ESB - Enterprise Service Bus (A) ProdML (Policy-Driven Security) (C) Historian Data, SCADA. Automated Feeds (Policy-Driven Security) (D) Near Real Time Monitoring (F) Other Applications Database with PPDM

106 104 Internal SKK Migas The development of IOS is basically a collaborative activity involving technical and MSI functions of SKK Migas and technical and ICT functions of PSC Contractors, and third party support, if required. The implementation of IOS covers the following strategic data: IOS for Production Monitoring & Lifting: is a collaborative activity of Production Operations Division and MSI Division, with supports from the relevant PSC Contractors in extracting production and lifting data from the production data management system of PSC Contractor to SKK Migas, using WitsML data exchange standards, in order to improve the monitoring of production and lifting IOS for Drilling Monitoring: is a collaborative activity of Survey and Drilling Division and MSI Division, with supports from the relevant PSC Contractors in extracting drilling plan and realization data from the drilling operation system of PSC Contractor to SKK Migas, using WitsML data exchange standards, in order to improve the monitoring of drilling activities in PSC Contractor. IOS for Financial Quarterly Report (FQR): is a collaborative activity of Accounting Division and MSI Division, with supports from the relevant PSC Contractors in extracting quarterly financial report from the finance system of PSC Contractor to SKK Migas using an account combination, Chart of Account- COA components (Cost Center, WBS, etc), and using XBRL data exchange standards to maintain the accuracy and validity of data/information from PSC Contractor to SKK Migas. AFE/ Integrated Manager: is an integrated system to evaluate and approve the AFE proposed by PSC Contractors, in order to improve the quality and transparency of data related to the submission of PSC Contractor s AFE proposal, revision and approval of AFE Close Out, and to improve the effectiveness and efficiency of decision making process of SKK Migas Management. Internal Information System (IIS) In addition to the requirement of integration and interconnection to PSC Contractors and stakeholders, the application of information and communication technology is also implemented to improve SKK Migas internal performance primarily in relation to the improvement in the effectiveness, efficiency, and transparency of SKK Migas operations. Application mechanism or method through the implementation of information system is intended to accelerate business and administration processes within SKK Migas with reference to the prevailing governance. Mobile Application (Prototipe) Java Server Faces (JSF) Liferay Portal The first system in SKK Migas with an integrated concept of multi-systems (it is a role model of integration system) which will be used as a reference to the integrated and distributed system similarly applied in SKK Migas. webmethods Integration Server webmethods Business Process Management Supporting Data Employment Data Supporting Database Alfresco ECM Active Directory Exchange Server ERP - Human Capital Management (SAP)

107 105 Several IIS programs that have been implemented are among others: Enterprise Resource Planning (ERP) system to manage internal finance, personnel (human resources), office facilities, assets and low-value assets, and procurement processes Electronic General Administration Management (e-pau) to manage administration, correspondence, and archiving activities. Incoming Letter Flow Process Outgoing Letter Flow Process (full cycle) Secretary/Secretarat Official Start Drafting of Final Drafting of Approval of Numbering of Start Outgoing Letters Outgoing Letters Outgoing Letters Outgoing Letters Registration of Incoming Letter Disposition of Incoming Letters External Execution End Dispatch of Scan and Upload to Signing of Outgoing Letters User Home ECM Outgoing Letters Secretary/Secretarat Official Staff Staff End Use of in creating electronic official forms to support the acceleration of SKK Migas operation business process in relation to the communication and approval process. The development of SOA-based Enterprise Architecture (EA) is the mapping and alignment of business process between functions, business process and application system, in order to enhance communication between organization and business, to improve consistency, accuracy, accuracy of time, integrity, quality, availability, access, and to accelerate the integration of system DATA PROCESSING AND MANAGEMENT National upstream oil and gas business activities are supervised and controlled in various aspects; as from contract, budget and operation, finance, to reporting. All activities must be synergized one to another, and the reporting of all aspects should have reference in order to avoid duplication and inconsistency of the reporting and information. In order to prevent and avoid any duplication of data and inconsistencies in the reporting and information of the existing applications, since 2012 the master data has been developing as a reference to the integrated data from all of the applications and it is expected to be completed in The management of integrated master data is also expected to facilitate workflow and access to data, as well as to improve the quality of data by providing a single source of truth. OPERATIONS OF THE INFORMATION TECHNOLOGY The requirement of information technology facilities and infrastructures are critical to support the operations of SKK Migas, therefore the availability of the reliable Information Technology facilities and infrastructures is mandatory. Service level is a mean to measure the reliability of information technology facilities and infrastructures in providing services to any of users. According to 2014 performance, the overall information technology service level is 98%, above the target of 90%.

108 106 Attachment Map of the Indonesian Conventional and Unconventional Oil and Gas Contract Areas in 2014

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110 108 Attachment Map of the Indonesian Conventional and Unconventional Oil and Gas Contract Areas in 2014 AREA I Exploration Block : 139 CBM Exploration Block : 54 Exploration Block : 81 Block under Termination Process : 41

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112 110 Attachment Map of the Indonesian Conventional and Unconventional Oil and Gas Contract Areas in 2014 AREA II Exploration Block : 139 CBM Exploration Block : 54 Exploration Block : 81 Block under Termination Process : 41

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114 112 Attachment Map of the Indonesian Conventional and Unconventional Oil and Gas Contract Areas in 2014 AREA III Exploration Block : 139 CBM Exploration Block : 54 Exploration Block : 81 Block under Termination Process : 41

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116 114 Attachment

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118 SKK Migas Special Task Force For Upstream Oil and Gas Business Activities Republic of Indonesia Gedung Wisma Mulia, 35 th Floor Jl. Jend Gatot Subroto No 42 Jakarta 12710, PO BOX 4775 Indonesia T : F : E : hupmas@skkmigas.go.id W :