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Pertamina unleashed

Back outside Opec again, Indonesia's oil and gas giant will spend heavily

When the upstream subsidiary of Indonesia's Pertamina group took control of French independent Maurel et Prom in early February, it marked the latest stage in the state-owned company's aggressive expansion of its overseas and domestic upstream activities.

The acquisition of the 186-year-old, Euronext Paris-listed oil and gas firm gives Pertamina operations in Africa, notably Gabon, Namibia, Nigeria, Tanzania, as well as Myanmar and other parts of Asia, Canada and Italy. With oil and gas reserves of around 205m barrels of oil equivalent, the purchase of Maurel et Prom means that "Pertamina can be more optimistic about developing its upstream business faster," enthuses upstream director Syamsu Alem.

The deal, which values Maurel et Prom at €4.20 a share, is linked to the future performance of oil prices. If Brent stays above $65 a barrel over 90 consecutive trading days during 2017, Pertamina will pay a bonus of €0.50 a share.

Indonesia refused in November to sign up to the Opec cuts - and left the group it had rejoined only a year earlier. Now Pertamina, under president and chief executive, Dwi Soetjipto, is in a hurry. It has boosted its short-term oil and gas production target to 0.67m barrels of oil equivalent per day, consisting of 333,000 b/d of oil and 2.08bn cubic feet a day of gas. It is a strategy designed to take advantage of rising crude prices.

As the capacity of its Indonesian assets decline, Pertamina is looking further afield to provide security of energy supply under an express government mandate. Last October, the group struck a deal with Russia's Rosneft to buy a 20% stake in the Northern Chayvo field off Sakhalin Island and 37.5% of the Russkoe field in Siberia, which is scheduled to start production in 2018. Pertamina also indicated it might buy shares in two of Iran's onshore fields - Ab Teymour and Mansouri - provided current development plans turn out favourably.

As the capacity of its Indonesian assets declines, Pertamina is looking further afield to provide security of energy supply

Aiming for a net profit in 2017 of $3bn, up substantially on last year, Pertamina is also boosting its refining capacity. Work on three new refining projects should start this year with rolling completion dates of 2019, 2021 and 2025. It's proof of the chief executive's sense of urgency that Pertamina decided to break with Aramco and go it alone on the upgrade of the Balongan refinery on the north coast of Java because the Saudi group was dragging its feet.

"The process of forming a partnership was taking a long time," Soetjipto told Reuters earlier this year. "This is really needed."

In late January, Pertamina also unveiled a five-step efficiency programme based on zero unplanned shut downs at its refineries. Simultaneously, Pertamina expects to cut operating costs by up to $3/b.

The efficiency programme has also paid off in higher revenues. According to the latest accounts, it added $1.6bn to the bottom line in the first nine months of 2016 and boosted daily oil production by 12%.

There's a lot more to come. Starting with planned capex of $6.7bn for 2017, Pertamina has earmarked a war chest of $54bn to invest in its upstream business between now and 2025. As a company spokesman told the Jakarta Post in late 2016, Pertamina expects to treble its total energy production by 2025, including oil, gas and geothermal, to an impressive 1.91m boe/d, up from the nearer-term target of 0.67m b/d.

It won't take long to see if these goals are feasible. In March the group will take over two onshore blocks - Attaka and East Kalimantan - respectively held by Chevron and Japan's Inpex. In both cases Pertamina intends to substantially boost production.

Under pressure from the government to provide the nation with sufficient energy to match its rate of economic growth, Pertamina was in no position to sign up to Opec's reduced output target of 32.5m barrels a day. The state-owned group's importance to the economy made continued membership incompatible with its national role, particularly as it's been rapidly increasing output for the past three years in response to fast-rising domestic demand.

Meantime, Maurel et Prom will boost Pertamina's offshore production. Some of the French company's plum assets are in Gabon and Tanzania, where it posted a 43% increase in hydrocarbon production. But the acquisition will also make a contribution to Pertamina's bottom line. Despite a 27% fall in the average price of its oil sales, Maurel and Prom still managed €57m ebitda, down by only €6m.

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