1

11

THE GOVERNMENT ROLE AND STRATEGY THE GOVERNMENT ROLE AND STRATEGY TO ATTRACT NEW INVESTMENT TO ATTRACT NEW INVESTMENT

IN MATURE BASIN, PRODUCING FIELDSIN MATURE BASIN, PRODUCING FIELDS

BY : NOVIAN M. THAIB

(DIRECTOR OF UPSTREAM BUSINESS DEVELOPMENT)

BY : NOVIAN M. THAIB

(DIRECTOR OF UPSTREAM BUSINESS DEVELOPMENT)

DIRECTORATE GENERAL OF OIL AND GASDEPARTMENT OF ENERGY AND MINERAL RESOURCES

REPUBLIC OF INDONESIA

DIRECTORATE GENERAL OF OIL AND GASDEPARTMENT OF ENERGY AND MINERAL RESOURCES

REPUBLIC OF INDONESIA

PRESENTED IN 4th Workshop on the Indonesian PPM Case Study

Jakarta, June 15, 2006

PRESENTED IN 4th Workshop on the Indonesian PPM Case Study

Jakarta, June 15, 2006

22

LEGAL REFORMLEGAL REFORMCURRENT SITUATIONCURRENT SITUATIONMATURE BASIN DEVELOPMENT MATURE BASIN DEVELOPMENT POLICYPOLICY

–– BROWNFIELD BROWNFIELD –– MARGINAL FIELDMARGINAL FIELD

INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

PRESENTATION OUTLINE

2

33

LEGAL REFORMLEGAL REFORM

44

• Regulator• Player

Player

RegulatorMIGAS

SupervisorBP MIGAS

PREVIOUS NEW

1971 - 2001 2001 - recent (UU 22/2001)

PERTAMINA(Government)

GovernmentPolicy’s

Boundary

REFORM PHILOSOPHY

3

55

POLICY’S PLATFORM OBJECTIVE

NATIONWELFARE

PROFESSIONALCOMPETENCY

BUILDING

ORGANIZATIONSTRUCTURAL

REFORM

LEGALREFORM

IMPLEMENTATION AND OBJECTIVE

66

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)

4

77

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.

88

CURRENT SITUATIONSCURRENT SITUATIONS

5

99

-10

100 105 110 115 120 125 130 135 140

5

0

-5

DRILLED BASIN, NO DISCOVERY YET

FRONTIER BASIN

PRODUCING BASIN

DRILLED AND PROVEN DISCOVERY, BUT NOT PRODUCING YET

1.

2.

3.

4.

TERTIARY SEDIMENT BASINS OF INDONESIA

1010

NO PRODUCING (8)NO PRODUCING (8)PRODUCING (15)PRODUCING (15)

NO DISCOVERY (15)NO DISCOVERY (15)DISCOVERY (23)DISCOVERY (23)

DRILLED (38)DRILLED (38)UNDRILLED (22)UNDRILLED (22)

SEDIMENTARY BASINS IN INDONESIA (60)SEDIMENTARY BASINS IN INDONESIA (60)

6

1111

1212

Mahakam Delta Creaming Curve

0.02.04.06.08.0

10.012.014.016.0

1970 1975 1980 1985 1990 1995 2000 2005

Discovery Year

Cum

ulat

ive

EUR

(BB

OE)

Handil

TunuPeciko

Deep Water

Creaming Curve West Natuna

0.000.250.500.751.001.251.501.752.00

1970 1975 1980 1985 1990 1995 2000 2005

Discovery Year

Cum

ulat

ive

EU

R (B

BO

E)

Belut/Belanak

North BelutBelida

Kerisi

OIL AND GAS FIELDS > 50 MMBOE

7

1313

121,5

4,270.8

950.8

685.9

869.7

400.1

816.5

145.3

Papua

TOTAL OIL (MMBOE)TOTAL OIL (MMBOE)

Natuna

Maluku

PROVEN = 4,187.47 MMSTBPOTENTIAL = 4,439.48 MMSTBTOTAL = 8,626.96 MMSTB

99

15,3

120.1NAD

62.8

69.1

North Sumatera

Central Sumatera

South Sumatera

East Java West Java

South Sulawesi

East Kalimantan

South Kalimantan

INDONESIA OIL RESERVES(STATUS JANUARY 1st, 2005)

1414

1.27

7.75

24.63

6.04

10.41

53.61

48.80

4.13

24.24South

Sumatera

South Sulawesi

Papua

NATURAL GAS RESERVE (TSCF)(P1 + P2 + P3)

NATURAL GAS RESERVE (TSCF)(P1 + P2 + P3)

Natuna

East Java

EastKalimantan

North Sumatera

West Java

PROVEN = 97.26 TSCFPROBABLE = 48.81 TSCFPOSSIBLE = 39.73 TSCFTOTAL = 185.80 TSCF

4.49

N A D

CentralSumatera

0.43

CentralSulawesi

INDONESIA GAS RESERVE(STATUS JANUARY 1st, 2005)

8

1515

0

200

400

600

800

1000

1200

1400

1600

MB

OPD

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

2000 2001 2002 2003 2004 2005

INDONESIA OIL AND CONDENSATE PRODUCTION(2000 (2000 -- 2005)2005)

1616

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

MM

SCFD

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

2000 2001 2002 2003 2004 2005

GAS PRODUCTION & UTILIZATION(2000 (2000 -- 2005)2005)

9

1717

PRODUCTION 100%

INVESTMENT CREDIT

MAX COSTRECOVERY : 100%

FTP 10%

EQUITY TO BE SPLIT

INDONESIA SHARE

CONTRACTOR TAKE

TAX 44%

DMO

INDONESIA TAKE

TAXABLE INCOME

CONTRACTOR SHARE

(+)

(-)

(+)(+)

(-)

(+)

(-)

(-)

(-)

(-)

(+)

(+)

(+)DMO FEE

INDONESIA PSC

1818

BLOCKS ARE PREPARED AND DESIGNATED BY MIGAS AND OFFERED THROUGH TENDER.EVALUATION PERIOD FROM ANNOUNCEMENT DATE TO BID SUBMISSION IS 5 – 6 MONTHS.

3. BID INFORMATIONIT 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 & INFORMATIONIT 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 FORUM6. BID PARTICIPATION

THE TENDER PARTICIPANT SHOULD SUBMIT THE ENTIRE TENDER DOCUMENT BEFORE OR ON THE CLOSING DATE OF THE TENDER.

7. BID EVALUATIONTHE 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 SIGNINGBPMIGAS AND THE SUCCESSFUL BIDDER WILL SIGN THE COOPERATION CONTRACT.

1. ANNOUNCEMENTSPECIAL ANNOUNCEMENT OF THE NEW OFFERED WORKING ACREAGE.

2. BID INVITATIONINVITATION WILL BE DISSEMINATED TO ALL COMPANIES THROUGH OUR HOME PAGE AT HTTP://WWW.GEOMIGAS.COM Bid Invitation

Bid Information

Participation

Determination of theWinning Bidder

Bid Evaluation

Bid InvitationANNOUNCEMENT

BID INVITATION

BID INFORMATION

DATA & INFORMATION

CLARIFICATION FORUM

BID PARTICIPATION

BID EVALUATION

DETERMINATION OF THE SUCCESSFUL BIDDER

CONTRACT SIGNING(BPMIGAS & CONTRACTOR)

11

22

33

44

55

66

77

88

89

REGULAR TENDER

10

1919

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.

2020

MATURE BASIN DEVELOPMENTMATURE BASIN DEVELOPMENTPOLICYPOLICY

11

2121

BROWNFIELDBROWNFIELD

2222

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)

BROWNFIELD

DEFINITIONS

12

2323

INCENTIVE FOR EOR : – SECONDARY RECOVERY :

17% INVESTMENT CREDIT, ANDDMO HOLIDAY 60 MONTH

– TERTIARY RECOVERY :CHANGING EQUITY SPLIT (STANDARD IN PSC)

NON EOR STILL IN THE FINALIZATION PROCESSSTILL IN THE FINALIZATION PROCESS

EOR AND NON EOR

BROWNFIELD INCENTIVE ALTERNATIVEDMO Holiday 60 MONTHCOST RECOVERY UPLIFTICR (Interest Cost Recovery)

INCENTIVE FOR BROWNFIELD

2424

0100200300400500600700800900

100011001200130014001500160017001800

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Prod

uctio

n (M

BOPD

)

Oil Production Profile: 1994-2015Efforts to increase future outputsOil Production Profile: 1994Oil Production Profile: 1994--20152015Efforts to increase future outputsEfforts to increase future outputsBPMIGASBPMIGAS

Historical OutputHistorical Output Projection to 2015Projection to 2015

No Additional Effort Profile

(do nothing)

Maintenance Optimization

On-going Field Development Projects

Marginal FieldsMarginal FieldsBrown FieldsBrown Fields

10001000

13

2525

MARGINAL FIELDMARGINAL FIELD

2626

MARGINAL FIELD DATA

RESERVES INITIAL PRODUCTIONCONTRACTOR

BOPD

BP ONWJ

2 JAMBI EOR 19 40,083.3 9,870 1,150 331.0 46

7 PREMIER OIL 10 51.0 147 - - -

8 CPI 24 7,068 - - - -

TOTAL 99 87,697.6 10,428.2 79,130 529.8 197

3 TALISMAN OK 1 - 9.6 - 3.3 1

KODECO

KONDUR

CNOOC

42,450

-

1,330

34,200

OIL(MBO)

GAS(BSCF) MMSCFD

1 16 82.6 387.8

13.8

-

-

195.5 91

4 3 7,753.0 - -

5 15 29.7 - 5

6 11 32,630.0 - 54

WELLSNO. FIELDS

14

2727

0100200300400500600700800900

100011001200130014001500160017001800

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Prod

uctio

n (M

BOPD

)

Oil Production Profile: 1994-2015Efforts to increase future outputsOil Production Profile: 1994Oil Production Profile: 1994--20152015Efforts to increase future outputsEfforts to increase future outputsBPMIGASBPMIGAS

Historical OutputHistorical Output Projection to 2015Projection to 2015

No Additional Effort Profile

(do nothing)

Maintenance Optimization

On-going Field Development Projects

Marginal FieldsMarginal Fields

10001000

2828

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.

CHALLENGES IN THE DEVELOPMENT OF MARGINAL FIELDS

15

2929

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 IMPLEMENTATIONSIMPLIFICATION OF PROCEDURES AND PROCESSESBUILDING UP COMMITMENTS & POLITICAL WILL TO REALIZE THE PROGRAMS.

CHALLENGES IN THE DEVELOPMENT OF MARGINAL FIELDS

3030

COST RECOVERY UPLIFT = 20%

NEW INCENTIVE IN THE MARGINAL OIL FIELD DEVELOPMENT(DECREE OF MINISTER OF ENERGY AND MINERAL RESOURCES NO. 0008/2005)

16

3131

PROBLEMATIC DEFINITION & CHALLENGES

THE STANDARD DEFINITION IN THE PSC IS NOT FLEXIBLE ENOUGHA MODIFIED DYNAMIC DEFINITION AND NEW CRITERIA IS REQUIRED IF SIGNIFICANT ADDITIONAL CAPACITY OF FUTURE OIL SUPPLY IS EXPECTEDIT SHOULD ALSO COVER MOST OF SMALL FIELDS & SOME LARGER FIELDS THAT BECOME UNECONOMIC AT CURRENT PSC TERM AND CONDITION AT VARIOUS MATURITY STAGENEEDS STRONG EFFORT AND POLITICAL WILL

MARGINAL FIELDS

3232

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

ECONOMIC PARAMETERECONOMIC PARAMETER

MARGINAL FIELDS

17

3333

EFFORTS & CHALLENGESEFFORTS & CHALLENGES

THE CREATION OF A JOINT TASK FORCETHE CREATION OF A JOINT TASK FORCE(BPMIGAS + PSCS + SERVICES COMPANIES(BPMIGAS + PSCS + SERVICES COMPANIES))

TO RETO RE--EVALUATE THE ECONOMICS OF MMFS?EVALUATE THE ECONOMICS OF MMFS?

TO DEFINE THE METHOD TO IMPROVE MMFS ECONOMICSTO DEFINE THE METHOD TO IMPROVE MMFS ECONOMICS

TO DEFINE WHAT INCENTIVES REQUIREDTO DEFINE WHAT INCENTIVES REQUIRED

NOT ECONOMICNOT ECONOMIC

NOT ECONOMICNOT ECONOMIC

MATURE & MARGINAL FIELDS

3434

APPROACH & TECHNOLOGY SOLUTION

1. GOOD RESERVOIR MANAGEMENT2. INNOVATIVE OPTIMUM DEVELOPMENT SCENARIO3. FIT FOR PURPOSE DRILLING AND PRODUCTION

TECHNOLOGY4. MINIMUM SURFACE FACILITY DESIGN5. JOINT FACILITIES & INFRASTRUCTURE CONCEPT

CHALLENGES IN THE DEVELOPMENT OF MARGINAL FIELDS

18

3535

INVESTMENT OPPORTUNITIESINVESTMENT OPPORTUNITIES

3636

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.

19

3737

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.

3838

MAINTAIN/IMPROVE PRODUCTION LEVEL

EXTENSIFICATION OFFERING NEW BLOCK - LATERALLY / VERTICALLY :

CONVENTIONAL AREADEEP WATER AREAFRONTIER AREA

INTENSIFICATION IMPROVING RECOVERY FACTOR OF PRODUCING OR SUSPENDED FIELD :

BROWNFIELDWORKOVERADDITIONAL PUMPGASLIFTEOR

MARGINALOLD WELL

DEVELOPMENT OF PROVED UNDEVELOPED RESERVES/LAYERS

20

3939

THANK YOU