Pertamina tries to battle falling oil and gas production
Indonesia’s state firm is battling to reverse the country’s falling oil and gas production
In a bid to cut Indonesia’s increasing dependence on imports, national oil company (NOC)
Pertamina has unveiled an aggressive plan to almost double its production within four years.
The net oil importer has failed to stem falling oil production, but Pertamina – formed in 1968 – is again emerging as a national champion.
It’s timely too. Indonesia is struggling to attract international investment in its maturing oil and gas sector. So it is critical that the NOC regains some mojo, acting as a credible alternative to the majors.
Renewed confidence in a more capable Pertamina, which has radically reversed production in mature areas, such as the Offshore North West Java Block, formerly operated by UK supermajor
BP, potentially gives Jakarta a home-grown option to arrest the country’s output decline.
Pertamina’s renaissance also gives the government some negotiating room. “Indonesia can push foreign companies harder, as Pertamina is definitely more capable now. However, whether they can do the hard exploration is another question. They certainly have the ambition,” Ashley Wright, an Indonesia-focused partner at law firm
Norton Rose Fulbright told Petroleum Economist.
“They are starting to look a bit like Petronas,” he added, “which is ironic as in the 1970s the Malaysian NOC was set up to mirror Pertamina”. Back then Pertamina was seen as something of a trailblazer for NOCs.
Indonesia can claim to have developed the production-sharing contract (PSC) to a much higher degree of sophistication than had been seen before, added Wright.
Indonesia played a strong role in the Non-Aligned Nations movement – an international group of countries that did not want to be officially aligned with or against any major power bloc, particularly Western and Eastern blocs during the Cold War. And greater control of production through its PSCs was a significant feature in the political economics of that era, said Wright.
But the glory days have passed. Nowadays, Indonesia’s dominant refining, marketing and trading firm cannot meet demand at home. Net-oil imports have been running at about 400,000 barrels a day (b/d) over the past two years. Indonesia withdrew from
Opec in 2008.
Pertamina owns six domestic refineries with total capacity of 1.031m b/d, which met almost 60% of Indonesia’s total demand for refined products last year. Its upstream production supports around 35% of its downstream crude requirements.
The company, headed by Karen Agustiawan, produced 461,600 barrels of oil equivalent per day (boe/d) in 2012. It pumped around 200,000 barrels per day (b/d) of oil – roughly a quarter of Indonesia’s total production of 860,000 b/d that year – and up 5% year-on-year.
But from 2013-2016, an ambitious $36.5bn spending plan – almost quadruple its $9.3bn spend in the previous four-year term – aims to lift production by 90% to 875,900 boe/d by 2016.
More than two-thirds of the funds will be syphoned to its upstream exploration and production business, as well as geothermal development. Indonesia has been bestowed with unparalleled potential reserves of geothermal energy, as the world’s most volcanically active country.
Cash will be used to boost output from its existing reserves, as well as through the acquisition of overseas assets, giving Pertamina some much-needed geographic diversification.
Only 0.02% of the company’s proved reserves – estimated at 2.89 billion boe – lie outside Indonesia. Proved plus probable reserves amounted to 3.92 billion boe at the end of 2012. Recent efforts to expand beyond its borders include a $1.75bn deal to buy
ConocoPhillips’s Algerian unit, which has rights to three oilfields and access to 100m barrels of reserves.
Earlier this year, the firm abandoned plans to buy a 32% stake in Venezuela’s
Petrodelta for $725m due to the difficult operating environment in the South American nation. But negotiations over pricing may have also foiled the transaction, as the Indonesian government refused to approve a higher sale price for the deal.
Pertamina’s approved acquisition budget for 2013 is $1.9bn. But as the NOC is quadrupling its capital expenditure, Pertamina has less flexibility, compared to other Asian NOCs, to make further acquisitions this year, says ratings agency Moody’s. It could make small deals worth no more than $1bn to $2bn on top of its announced spending plans, added the agency.
Pertamina did recently sign a deal with Thailand’s partially state-backed
PTT Global Chemicals to jointly invest in a multi-billion dollar petrochemicals complex in Indonesia. Funding for this has not yet been allocated in the current budget.
Whether Pertamina can help stem waning oil production remains to be seen. It has quite a challenge considering the country’s energy regulator
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