THE GOVERNMENT ROLE AND STRATEGY TO ATTRACT NEW INVESTMENT IN MATURE BASIN, PRODUCING FIELDS BY : NOVIAN M. THAIB (DIRECTOR OF UPSTREAM BUSINESS DEVELOPMENT) PRESENTED IN 4 th th Workshop on the Indonesian PPM Case Study Jakarta, June 15, 2006 DIRECTORATE GENERAL OF OIL AND GAS DEPARTMENT OF ENERGY AND MINERAL RESOURCES REPUBLIC OF INDONESIA 1 PRESENTATION OUTLINE LEGAL REFORM CURRENT SITUATION MATURE BASIN DEVELOPMENT POLICY BROWNFIELD MARGINAL FIELD INVESTMENT OPPORTUNITIES 2 1
LEGAL REFORM 3 REFORM PHILOSOPHY PREVIOUS NEW PERTAMINA (Government) Regulator Player Player Regulator MIGAS Government Policy s Boundary Supervisor BP MIGAS 1971-2001 2001 - recent (UU 22/2001) 4 2
IMPLEMENTATION AND OBJECTIVE POLICY S PLATFORM OBJECTIVE PROFESSIONAL COMPETENCY BUILDING ORGANIZATION STRUCTURAL REFORM NATION WELFARE LEGAL REFORM 5 LEGAL REFORM 1. OIL AND NATURAL GAS WITHIN TERRITORY OF INDONESIA ARE A NATIONAL ASSET, CONTROLLED BY GOVERNMENT (MEMR) 2. GOVERNMENT AS THE MINING RIGHT HOLDER ESTABLISH AN IMPLEMENTING BODY (BPMIGAS) WHICH CONTROL THE OPERATIONAL MANAGEMENT 3. UPSTREAM BUSINESS ACTIVITIES SHALL BE CONDUCTED THROUGH PRE-DEFINED CONTRACTUAL SCHEMES (COOPERATIVE AGREEMENT) 6 3
LEGAL FOUNDATION OIL AND GAS AS STRATEGIC NON-RENEWABLE NATURAL RESOURCES WITHIN THE INDONESIA LEGAL TERRITORY ARE CONTROLLED BY THE STATE. LAW 22/2001 REGULATE OIL & NATURAL GAS ACTIVITIES, UPSTREAM ACTIVITIES SHALL BE CONDUCTED AND CONTROLLED THROUGH THE COOPERATION CONTRACT. THE COOPERATION CONTRACT COMPRISE AT LEAST THE FOLLOWING REQUIREMENTS: A. THE OWNERSHIP OF RESOURCES REMAIN UNDER THE GOVERNMENT OF INDONESIA. B. MIGAS CONDUCT AND EVALUATE THE ACREAGE OFFERING PROCESS. C. THE IMPLEMENTING BODY CONTROLS THE MANAGEMENT OF OPERATION. D. THE BUSINESS ENTITY OR PERMANENT ESTABLISHMENT UNDERTAKE CAPITAL AND RISK. 7 CURRENT SITUATIONS 8 4
TERTIARY SEDIMENT BASINS OF INDONESIA 100 105 110 115 120 125 130 135 140 5 0-5 -10 1. PRODUCING BASIN 3. DRILLED BASIN, NO DISCOVERY YET 2. DRILLED AND PROVEN DISCOVERY, BUT NOT PRODUCING YET 4. FRONTIER BASIN 9 SEDIMENTARY BASINS IN IN INDONESIA (60) UNDRILLED (22) (22) DRILLED (38) (38) DISCOVERY (23) (23) NO NO DISCOVERY (15) (15) PRODUCING (15) (15) NO NO PRODUCING (8) (8) 10 5
11 OIL AND GAS FIELDS > 50 MMBOE Mahakam Delta Creaming Curve Cumulative EUR (BBOE) 16.0 Deep Water 14.0 12.0 10.0 Peciko 8.0 Tunu 6.0 Handil 4.0 2.0 0.0 1970 1975 1980 1985 1990 1995 2000 2005 Discovery Year Creaming Curve West Natuna Cumulative EUR (BBOE) 2.00 1.75 Kerisi 1.50 1.25 Belida 1.00 0.75 North Belut 0.50 0.25 Belut/Belanak 0.00 1970 1975 1980 1985 1990 1995 2000 2005 Discovery Year 12 6
INDONESIA OIL RESERVES (STATUS JANUARY 1 st, 2005) NAD 120.1 121,5 North Sumatera Natuna 400.1 East Kalimantan 4,270.8 Central Sumatera 950.8 South Sumatera South Kalimantan 62.8 816.5 69.1 Maluku 99 Papua 145.3 West Java 685.9 East Java 869.7 15,3 South Sulawesi TOTAL OIL (MMBOE) PROVEN POTENTIAL TOTAL = 4,187.47 MMSTB = 4,439.48 MMSTB = 8,626.96 MMSTB 13 INDONESIA GAS RESERVE (STATUS JANUARY 1 st, 2005) N A D 4.49 1.27 North Sumatera Natuna 53.61 East Kalimantan Central Sumatera 7.75 48.80 Central Sulawesi 4.13 Papua South Sumatera 24.63 6.04 West Java NATURAL GAS RESERVE (TSCF) (P1 + P2 + P3) 10.41 0.43 South Sulawesi East Java 24.24 PROVEN = 97.26 TSCF PROBABLE = 48.81 TSCF POSSIBLE = 39.73 TSCF TOTAL = 185.80 TSCF 14 7
INDONESIA OIL AND CONDENSATE PRODUCTION (2000-2005) 1600 1400 1200 1000 MBOPD 800 600 400 200 0 2000 2001 2002 2003 2004 2005 TOTAL 1,413.9 1,340.6 1,249.4 1,146.8 1,094.4 1,062.1 OIL 1,272.5 1,208.7 1,117.6 1,013.0 965.8 934.8 CONDENSATE 141.4 131.9 131.8 133.8 128.6 127.3 15 GAS PRODUCTION & UTILIZATION (2000-2005) 9,000 8,000 7,000 6,000 MMSCFD 5,000 4,000 3,000 2,000 1,000-2000 2001 2002 2003 2004 2005 PRODUCTION 7,927 7,690 8,318 8,644 8,278 8,179 UTILIZATION 7,470 7,188 7,890 8,237 7,909 7,824 FLARE 457 502 428 407 369 355 16 8
INDONESIA PSC PRODUCTION 100% (-) FTP 10% (+) (-) (-) EQUITY TO BE SPLIT INVESTMENT CREDIT MAX COST RECOVERY : 100% INDONESIA SHARE CONTRACTOR SHARE (+) (+) DMO (-) (-) DMO FEE (+) (+) TAXABLE INCOME INDONESIA TAKE (+) TAX 44% (-) CONTRACTOR TAKE (+) 17 REGULAR TENDER BLOCKS ARE PREPARED AND DESIGNATED BY MIGAS AND OFFERED THROUGH TENDER. EVALUATION PERIOD FROM ANNOUNCEMENT DATE TO BID SUBMISSION IS 5 6 MONTHS. 1 1 22 33 44 55 66 77 88 89 Bid ANNOUNCEMENT Invitation Bid BID Invitation INVITATION Bid BID Information INFORMATION DATA & INFORMATION CLARIFICATION Participation FORUM Bid BID Evaluation PARTICIPATION Determination BID EVALUATION of the Winning Bidder DETERMINATION OF THE SUCCESSFUL BIDDER CONTRACT SIGNING (BPMIGAS & CONTRACTOR) 1. ANNOUNCEMENT SPECIAL ANNOUNCEMENT OF THE NEW OFFERED WORKING ACREAGE. 2. BID INVITATION INVITATION WILL BE DISSEMINATED TO ALL COMPANIES THROUGH OUR HOME PAGE AT HTTP://WWW.GEOMIGAS.COM 3. BID INFORMATION IT CONTAINS THE INFORMATION OF THE TENDER PROCESS INCLUDING INSTRUCTIONS TO THE TENDER PARTICIPANT. THE TENDER PARTICIPANT MUST PURCHASE THE BID INFORMATION AT MIGAS. 4. DATA & INFORMATION IT IS MANDATORY THAT ANY TENDER PARTICIPANT WILL HAVE TO PURCHASE AN OFFICIAL GOVERNMENT A DATA PACKAGE THROUGH AND SET BY MDM PRIOR TO SUBMITTING THE TENDER DOCUMENT. 5. CLARIFICATION FORUM 6. BID PARTICIPATION THE TENDER PARTICIPANT SHOULD SUBMIT THE ENTIRE TENDER DOCUMENT BEFORE OR ON THE CLOSING DATE OF THE TENDER. 7. BID EVALUATION THE TENDER TEAM EVALUATES THE SUBMITTED DOCUMENT BASED ON THE TECHNICAL ANALYSIS, FINANCIAL OUTLAY AND COMMITMENT ( SUCH AS SIGNATURE BONUS ), AND ESPECIALLY THE FIRM COMMITMENT OF THE WORK PROGRAM AS PROPOSED BY BIDDER. 8. DETERMINATION OF THE SUCCESSFUL BIDDER BASED ON THE TENDER TEAM RECOMMENDATION, THE DIRECTOR GENERAL OF OIL AND GAS APPOINTS THE SUCCESSFUL BIDDER. 9. CONTRACT SIGNING BPMIGAS AND THE SUCCESSFUL BIDDER WILL SIGN THE COOPERATION CONTRACT. 18 9
DIRECT OFFER ALL COMPANIES APPLYING FOR THE BLOCK THROUGH THE DIRECT OFFER MECHANISM SHALL PROPOSE AND CONDUCT PRESENTATION TO MIGAS, COVERING TECHNICAL ASSESSMENT OF THE BLOCK POTENTIAL AND COMPANY PROFILE. TWO (2) TYPES OF DIRECT OFFER MECHANISM : PROPOSE FOR EXISTING UNSOLD BLOCKS PROPOSE FOR CERTAIN OPEN AREA WITH / WITHOUT JOINT STUDY. 19 MATURE BASIN DEVELOPMENT POLICY 20 10
BROWNFIELD 21 BROWNFIELD DEFINITIONS 1. BROWNFIELD - AN EXISTING PRODUCING FIELD, PRODUCING FIELD IN DECLINE, OR PREVIOUSLY DEVELOPED FIELD. THESE FIELDS, OR PROJECTS WITHIN THESE FIELDS ARE UNECONOMIC UNDER THE CURRENT TERMS & CONDITIONS, WOULD REQUIRE INCENTIVES TO STIMULATE NEW OR ADDITIONAL INVESTMENT IN ORDER TO ENHANCE PRODUCTION AND/OR ADD RESERVES. (TEAM BROWNFIELD KKKS) 2. BROWNFIELD DEFINED AS MATURE FIELD IN A STATE OF DECLINING PRODUCTION OR REACHING THE END OF THEIR PRODUCTIVE LIFE. (SCHLUMBERGER) 22 11
INCENTIVE FOR BROWNFIELD EOR AND NON EOR INCENTIVE FOR EOR : SECONDARY RECOVERY : 17% INVESTMENT CREDIT, AND DMO HOLIDAY 60 MONTH TERTIARY RECOVERY : CHANGING EQUITY SPLIT (STANDARD IN PSC) NON EOR STILL IN THE FINALIZATION PROCESS BROWNFIELD INCENTIVE ALTERNATIVE DMO Holiday 60 MONTH COST RECOVERY UPLIFT ICR (Interest Cost Recovery) 23 BPMIGAS Oil Production Profile: 1994-2015 Efforts to increase future outputs 1800 1700 Historical Output Projection to 2015 1600 1500 1400 1300 Brown Fields Marginal Fields 1200 Production (MBOPD) 1100 1000 900 800 700 600 On-going Field Development Projects Maintenance Optimization 500 400 300 200 100 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 No Additional Effort Profile (do nothing) 1000 24 12
MARGINAL FIELD 25 MARGINAL FIELD DATA NO. CONTRACTOR FIELDS RESERVES OIL (MBO) GAS (BSCF) 1 BP ONWJ 16 82.6 387.8 INITIAL PRODUCTION BOPD 42,450 MMSCFD 195.5 91 2 JAMBI EOR 19 40,083.3 9,870 1,150 331.0 46 3 TALISMAN OK 1-9.6-3.3 1 4 5 6 KODECO KONDUR CNOOC 3 15 11 7,753.0 29.7 32,630.0 13.8 - - - 1,330 34,200 - - - - 5 54 7 PREMIER OIL 10 51.0 147 - - - 8 CPI 24 7,068 - - - - WELLS TOTAL 99 87,697.6 10,428.2 79,130 529.8 197 26 13
BPMIGAS Oil Production Profile: 1994-2015 Efforts to increase future outputs 1800 1700 Historical Output Projection to 2015 1600 1500 1400 1300 Marginal Fields 1200 Production (MBOPD) 1100 1000 900 800 700 600 On-going Field Development Projects Maintenance Optimization No Additional Effort Profile (do nothing) 1000 500 400 300 200 100 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 27 CHALLENGES IN THE DEVELOPMENT OF MARGINAL FIELDS MOST OF OIL FIELDS AND MANY LARGER GAS FIELDS ARE ALREADY MATURE. THIS MEANS THAT EXPLORATION & DEVELOPMENT PROSPECTS (PARTICULARLY FOR OIL) ARE GETTING SMALLER AND HARDER TO FIND. HOWEVER, NUMEROUS SMALLER DISCOVERIES, LEADS AND PROSPECTS, AS WELL AS DEPLETED FIELDS MAY CONTRIBUTE SIGNIFICANT FUTURE ADDITIONAL CAPACITY OF SUPPLY AND CAN BE COMMERCIALIZED IF A DYNAMIC MARGINAL FIELD PROGRAM CAN BE INNOVATED. 28 14
CHALLENGES IN THE DEVELOPMENT OF MARGINAL FIELDS MAJOR CHALLENGES FOR MF DEVELOPMENTS AND PROGRAM ARE RELATED TO REDEFINITION OF A BETTER MF TERMINOLOGY, NEGOTIATION OF AN ACCEPTABLE MARR, ACCEPTABLE INCENTIVES ADOPTION AND IMPLEMENTATION SIMPLIFICATION OF PROCEDURES AND PROCESSES BUILDING UP COMMITMENTS & POLITICAL WILL TO REALIZE THE PROGRAMS. 29 NEW INCENTIVE IN THE MARGINAL OIL FIELD DEVELOPMENT (DECREE OF MINISTER OF ENERGY AND MINERAL RESOURCES NO. 0008/2005) COST RECOVERY UPLIFT = 20% 30 15
MARGINAL FIELDS PROBLEMATIC DEFINITION & CHALLENGES THE STANDARD DEFINITION IN THE PSC IS NOT FLEXIBLE ENOUGH A MODIFIED DYNAMIC DEFINITION AND NEW CRITERIA IS REQUIRED IF SIGNIFICANT ADDITIONAL CAPACITY OF FUTURE OIL SUPPLY IS EXPECTED IT SHOULD ALSO COVER MOST OF SMALL FIELDS & SOME LARGER FIELDS THAT BECOME UNECONOMIC AT CURRENT PSC TERM AND CONDITION AT VARIOUS MATURITY STAGE NEEDS STRONG EFFORT AND POLITICAL WILL 31 MARGINAL FIELDS ECONOMIC PARAMETER RECOVERABLE RESERVES AND PRODUCTION CURRENT ECONOMIC CONDITIONS : OIL PRICE ASSUMPTION, PRODUCTIVE LIFE, MARR OPERATING METHODS : FIT FOR PURPOSE TECHNOLOGY, INFRASTRUCTURE, MINIMUM FACILITIES CONCEPT DESIGN GOVERNMENT REGULATIONS : PSC TERMS & CONDITIONS WIN-WIN" INCENTIVES 32 16
MATURE & MARGINAL FIELDS EFFORTS & CHALLENGES THE CREATION OF A JOINT TASK FORCE (BPMIGAS + PSCS + SERVICES COMPANIES) TO RE-EVALUATE EVALUATE THE ECONOMICS OF MMFS? NOT ECONOMIC TO DEFINE THE METHOD TO IMPROVE MMFS ECONOMICS NOT ECONOMIC TO DEFINE WHAT INCENTIVES REQUIRED 33 CHALLENGES IN THE DEVELOPMENT OF MARGINAL FIELDS APPROACH & TECHNOLOGY SOLUTION 1. GOOD RESERVOIR MANAGEMENT 2. INNOVATIVE OPTIMUM DEVELOPMENT SCENARIO 3. FIT FOR PURPOSE DRILLING AND PRODUCTION TECHNOLOGY 4. MINIMUM SURFACE FACILITY DESIGN 5. JOINT FACILITIES & INFRASTRUCTURE CONCEPT 34 17
INVESTMENT OPPORTUNITIES 35 INVESTMENT OPPORTUNITIES PLENTY OF HYDROCARBON BASINS HAVE NOT BEEN EXPLORED. POTENTIAL GEOLOGICAL PROSPECT STILL PROMISING. SIGNIFICANT NEW DISCOVERIES IN OLD PRODUCING AREAS, DEEP WATER AND REMOTE AREAS. GAS RESERVES AS A RESULT OF EXPLORATION INCREASED SIGNIFICANTLY OVER THE LAST 5 YEARS. HIGH SUCCESS RATIO ON EXPLORATION DRILLING. AROUND US$ 19 BILLIONS HAVE ALLOCATED FOR ON GOING AND FUTURE E&P PROJECTS. TO MAINTAIN THE PRODUCTION LEVEL THROUGHOUT INDONESIA NEED MORE TO DEVELOP POTENTIAL RESERVES. 36 18
INVESTMENT OPPORTUNITIES (CONT ) HUGE ENERGY MARKET AND GROWS RAPIDLY IN THE COUNTRY AS WELL AS IN THE WORLD. INDONESIA S GAS DOMESTIC DEMAND INCREASING. A TOTAL OF 1.5 BCFD SALES GAS AGREEMENT HAVE BEEN SIGNED DURING THE LAST 2 YEARS. EXPANSION AND PENETRATION TO NEW GAS PIPED AND LNG MARKETS. SUBSIDY ON DOMESTIC PETROLEUM PRODUCTS PRICE WILL BE ROLED BACK. STRATEGIC LOCATION OF INDONESIA IN THE CENTER OF GROWING CONSUMER REGIONS. TO GIVE A LEGAL CERTAINTY GOVERNMENT ORDINANCE NO. 35 YEAR 2004 OF UPSTREAM OIL & GAS BUSINESS ACTIVITIES ENACTED TO PROVIDE MORE CONDUCIVE AND COMPETITIVE BUSINESS CLIMATE. 37 MAINTAIN/IMPROVE PRODUCTION LEVEL EXTENSIFICATION OFFERING NEW BLOCK - LATERALLY / VERTICALLY : CONVENTIONAL AREA DEEP WATER AREA FRONTIER AREA INTENSIFICATION IMPROVING RECOVERY FACTOR OF PRODUCING OR SUSPENDED FIELD : BROWNFIELD WORKOVER ADDITIONAL PUMP GASLIFT EOR MARGINAL OLD WELL DEVELOPMENT OF PROVED UNDEVELOPED RESERVES/LAYERS 38 19
THANK YOU 39 20