Progressing CBM Development in Indonesia

- An Industry Perspective -

Mohd. Radzif Mohamad VICO CBM Commercial Manager

IndoGAS Conference 27th – 29th January 2015

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VICO Overview

• VICO is a 50:50 JV between BP and ENI

• VICO has operated the Sanga Sanga conventional oil and gas PSC since 1968 with first LNG in 1977

• CBM PSC awarded November 2009 for 30 years

• Sanga Sanga CBM PSC has met all PSC commitments & spent $250m to date

• Exploration complete, appraisal in progress

• First CBM rig & horizontal wells in Indonesia

• First CBM gas delivery to Bontang in 2011

• First CBM Gas Sales delivery to PLN in 2013

• Conventional & CBM PSC share infrastructure

SEM 201

MWP #1

Exploration Wells

Appraisal Programme

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2010 2011 2012 2013 2014

Resource Appraisal

PSC signed

Re-completed Mut 78 (old oil well)- first CBM well

Coring (Using Conventional Wells

Drilling MWP#1, first purpose drilled

CBM wells

Micro-seismic on MWP#2 fracs

First LRP

First Hydraulic rig on MWP#3

CBM to Power

Mut 205 Well Head Compressor Trial

First CBM horizontals in Indonesia

VICO CBM Achievements

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Indonesia CBM Resources

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• Resource potential in Indonesia estimated at over 450TCF • 54 CBM PSC’s awarded since 2008 with 22 in Sumatra and 34 in

Kalimantan • SKKMigas estimate and using latest data from operators, resource base of

130 to 140 TCF for CBM in Indonesia in licensed PSCs (more in unlicensed areas)

NOTE – Conventional Proved Reserves for Indonesia approximately 100 TCF (2014 BP statistical review)

Energy Demand/Supply

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• Strong GDP growth is driving increased domestic demand in Indonesia but domestic production is falling - decline in conventional oil & gas production

• Likely that Indonesia will become a net importer of gas - CBM production could help fill the demand gap or imports will increase

Can CBM fill Indonesia’s Supply Gap?

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0

500

1,000

1,500

2,000

2,500

3,000

2013 2016 2019 2022 2025 2028 2031 2034

mm

cfd

Diesel & Fuel Oil (Grid and Captive)

LNG

YTF

Commercial and Technical

Total Demand

West Java Commerical Piped GasSource: Wood Mackenzie

If no CBM, Indonesia will have to fill the gap with LNG or high priced fuel oil.

West Java Supply/Demand

CBM In Indonesia • Has CBM been successful in Indonesia?

– Initial GoI CBM Roadmap? 500 100 8.9 MMSCFD

– Many have left – BP, Exxon, Total, Santos, etc

– Current investor sentiments at a low – No CBM PSC awards

– Well behind on Exploration Commitment – less than 20%

– Regulatory and fiscal environment unsuited for CBM

– Good CBM potential but still needs to prove produceability and commerciality

How do we make CBM a SUCCESS

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Indonesian CBM industry is still in its infancy M

atur

ity

Exploration time to commercialisation

UNITED STATES • Resources: 700 TCF • Main Basin: San Juan,

Black Warrior • Annual Production: 1.65

TCF (2012) • Start exploration: 1950’s • Commercialisation start:

1980’s • Wells drilled: 30,000 • Cost per well: US$ 200-

300 Thousand 252

BCF/ Year

UNITED STATES • Fiscal incentives:

• Unregulated selling price • Tax credits (initial stage) • Land owner royalties • Light handed regulation

AUSTRALIA • Resources: 250 TCF • Main Basin: Bowen, Surat • Start exploration: 1950’s • Commercialisation start: 1990’s • Wells drilled: 1,300 (2010) • Cost per well: US$ 1.2 Million • Fiscal incentives:

• Favorable fiscal regime • Unregulated selling price • Government mandates Power

Companies to utilize power generated from gas

CHINA • Resources: 1300 TCF • Produced basin: Qinshui • Annual Production: 21 BCF (2012) • Start exploration: 1990’s • Commercialisation start: 2009 • Wells drilled: 2,000 • Fiscal incentives:

• Price reforms • Preferential power tariff • Tax reliefs • Low government take

INDONESIA • Resources: 140 TCF

(based on active working areas)

• Main basin: Kutai, South Sumatera

• Annual Production: 450 MCF (2013)

• Start exploration: 2008 • No Commerc. yet • Wells drilled: 84

Annual Production

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ADVISORY BOARD

EXECUTIVE DIRECTOR

Work Group Fiscal

Work Group Technology

Work Group Regulations

ESDM LITBANG

LEMIGAS

Ministerial Policy Brief

& Model Agreement

3Q 2014 1Q 2015 1Q 2015

Government & Industry Initiative

INDUSTRY

Government of Indonesia

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What Does Indonesia Need • Consider aggressive short term incentives.

• Access to the high value gas market in Indonesia, consistent with Domestic LNG Price

• A significant reduction in the overall regulatory regime

• Fiscal policy for the support of CBM.

• A “one stop shop” in the Government for all permitting

• Improved POD requirements for CBM

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~ Terima Kasih ~

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