Pertamina's offshore oil chase
After two years of belt-tightening, Indonesia's NOC is seeking to plug the country's energy consumption gap
The figures are huge. Pertamina will spend $3.24bn on its upstream business in 2018—a 21% rise from a year earlier. Most of the upstream budget will be invested in domestic fields, notably in the Mahakam block in East Kalimantan, which Pertamina has bought from Total and Inpex, as well as in the Jambaran gasfield after acquiring ExxonMobil's 41.4% stake in 2017.
But with its finances in better order, Pertamina is also venturing further offshore. After more than a year of negotiations, the group expects to complete its acquisition of an operating interest in Iran's Mansouri oilfield in May. And in late 2017, the Jakarta-based NOC signed a memorandum of understanding with Algeria's state-owned Sonatrach that holds considerable upstream promise.
Indonesia sees Pertamina as the main agent in its long-term goal of achieving energy security, and the acquisition of overseas assets is a fundamental element of the grand plan. As the group noted in its latest report: "Going forward, Pertamina will continue along this strategy in view of the limited oil and gas reserves in Indonesia in the face of increasing demand for energy including oil and gas."
That was the thinking behind the company's decision in 2017 to take a majority stake in French oil group Maurel & Prom, whose main activities are in Gabon. When a full takeover is approved, Pertamina will claim full ownership of M&P's oil and gas reserves. Under Pertamina's wing, the Euronext-listed company has drastically reduced its debt and resumed drilling in Gabon after a three-year hiatus.
"The recent conclusion of our financing on extremely favourable terms opens up new development prospects for us and attests to the multiple synergies we have been able to achieve with Pertamina," an enthusiastic M&P announced in early March.
Biting the bullet
Pertamina clearly feels more confident about boosting its upstream budget after some stringent cost-cutting within the wider group under its "Breakthrough" programme. Overall the plan achieved savings of nearly $2.7bn, comfortably ahead of target. In the upstream, Pertamina had aimed to trim $850m off operating expenses, but ended up saving $1.2bn. And downstream, the initial reduced total losses in the refineries to 0.13%, also ahead of target, for an "efficiency value" of $1.3m. According to 2016 figures—the latest available—while sales and other operating revenues were down by more than $5bn, to $36.4bn, Pertamina still managed to post pre-tax earnings of $7.5bn—a rise of $2.4bn. Despite collapsing revenues, it was the best result in five years.
Pertamina will be busy on several fronts in the upstream sector for the next couple of decades. Domestically, the Mahakam block will swallow $1.43bn, while the group has budgeted $1.54bn in 2018 to develop the Jamboran gasfield within the Cepu block, along with other fields in the Jambaran Tiung Biru (JTB) project. Pertamina holds a 91% stake in the JTB venture where the fields are estimated to contain combined reserves of 2.5 trillion cubic feet with a production capacity of 315m cf per day. The fields are expected to come onstream in 2020.
In the Mahakam block, Pertamina expects to produce 1.1bn cf/d of gas this year, more than 14% down on 2017 levels, while condensate production should reach 48,000 barrels a day in 2018—a rise of just over 7,000 b/d from last year.
Pertamina has set itself some tough targets for 2018. Overall, it is aiming for a 34% rise in total crude and gas production, to 930,000 barrels of oil equivalent a day. It has also got its sights set on 400,000 b/d of crude oil and condensate—an almost 20% rise—while its target for gas is almost 48% higher than a year earlier.
Looking further ahead, Pertamina hopes for production of 2.2m boe/d in 2025. Most of that will be produced domestically with around 600,000 boe/d expected to come from its overseas interests, according to S&P Global Platts.
Pertamina has high hopes for the second phase of the Mansouri field in Iran, assuming the last stage of contract negotiations go smoothly. Located 100km (62 miles) north of the Gulf coast, the first phase of the Mansouri field has been yielding 100,000 boe/d since it started up a decade ago. According to the National Iranian Oil Company, the phase-two development for which Pertamina has bid is expected to produce almost 64.5m cf/d of natural gas alone.
However, Pertamina's bid has been complicated by its need for partners. As upstream director Syamsu Alam told the Jakarta Post in March, it would be too risky to control the 80% by itself. "We want to seal the deal as soon as possible, but we need to find partners first," he said. The Indonesian group has indicated it wants just a 30% operating interest.
The Iranian government is bending over backwards to help Pertamina out. Under the current arrangements, the group will sign the contract in early May as an 80% owner and allow Pertamina to sell down the stake later. According to Pertamina, several prospective partners are waiting in the wings.
930,000 boe/d—Pertamina's 2018 target
Here also, Pertamina has set ambitious targets. Within five years the group expects to build oil production to 250,000 b/d in the Mansouri field. The 20-year budget has been set at about $6bn.
Meanwhile, the partnership with Algeria's Sonatrach should eventually go some way to providing the energy security the government needs. Under the memorandum of understanding signed on 21 December, Sonatrach and Pertamina have agreed to explore the development of existing and new upstream assets with a potential production of 20,000-30,000 b/d. Total reserves in these fields are put at over 100m barrels.
The MoU has been a long time coming. It was five years ago that Pertamina took a step into Algeria when it bought ConocoPhillip's stake for $1.75bn, giving the group a 65% participating interest in three main oilfields.
However, one ambitious offshore deal has fallen through. Until recently, Pertamina seemed anxious to buy two blocks in Russia in cooperation with Rosneft. Although these were intended to be modest stakes of between 10% and 15%, the group has reportedly ruled out the acquisition because of Russia's high taxes.
Back home, the belt-tightening has also yielded encouraging results downstream. Pertamina's perennially loss-making refineries have got into the black, with combined profit margins of 6%. The group plans to use some of that spare cash to develop a number of what it calls mega-projects. These include the revamping and upgrading of existing refineries as well as the construction of new ones.
As Pertamina admits, some of its refineries are in serious need of capital expenditure, citing among other deficiencies a "low level of flexibility and efficiency".
Two of these projects will come on stream between now and 2019, another in 2020, one more in 2022, and finally the Dumai refinery in 2025. By then, Pertamina expects to at least double its crude-processing capacity to about 2m b/d.
When the upgrades and new refineries are operational, Pertamina hopes that Indonesia will have gone a long way to plug its consumption gap.