1. Gas Development Master Plan
Steering Committee Meeting – 28 March 2013
Draft Policy Note 2 : Impediment to Developing Gas Reserves

2. 2
Outline
• Overall gas balance
• Infrastructure as an impediment
• Other impediments
• CBM
• Fiscal terms
• Potential for subsea wells
• Recommendations

3. 3
Overall gas balance

4. 4
Overall gas balance 2012-25
0
2.000
4.000
6.000
8.000
10.000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
MMSCFD
NERACA GAS BUMI INDONESIA 2012-2025
CONTRACTED DEMAND COMMITTED DEMAND POTENTIAL DEMAND EXISTING SUPPLY PROJECT SUPPLY POTENTIAL SUPPLY

5. 5
Infrastructure

6. 6
NAD region example – wrong operator, wrong
technology, wrong fiscal terms
Jau field
(ENI)
• 200 bcf
• 600-650
m water
depth
• 45km
from NSO
platform

7. 7
The tendering process…
• Kepodang offshore field on the Muriah licence originally
discovered in the 1980’s in 230 feet of water. The licence
was taken over by Arco in 1999 who signed a
memorandum of understanding with PLN for supply to
the Tambak Lorok combined cycle power in Semarang
The 1060MW Tambak Lorok power station was
completed in 1998 and can run on diesel or gas
• Petronas of Malaysia took over the licence in 2005 and
signed a gas sales agreement with PLN to supply 145
MMSCFD of gas for ten years. Petronas were intending to
construct a 200km pipeline from the field to shore.
However the private company Bakrie and Brothers had
won the tender to construct a main pipeline from
Kalimantan to Java.

8. 8
The tendering process…
• Bakrie successfully argued in 2009 that as the planned
Kepodang line would run in parallel to the line and that
they had the licence for that route that they, rather than
Petronas should provide the offshore transportation of
the gas and operate it as Phase 1 of their longer pipeline
system. Eventually in 2012 an overall development plan
was agreed which incorporated Petronas developing the
field and Bakrie providing the offshore transportation.
• Petronas is developing the field at a total cost estimated
as $545 million. Production is now planned to start in
October 2014. Bakrie are constructing the pipeline at a
cost of around $175 million.
• The project has effectively been delayed by three years
due to the lack of resolution of the transportation issue.
The Petronas production sharing agreement was to
expire in 2021. As a consequence of this the government
extended the production sharing agreement to 2025.

9. 9
Jawad Barah region – the cost of failure
running Tampak Lorok 1000 MW on diesel

10. 10
Pertamina Gundih fields – a technical
problem

11. 11
The technical problems
• Pertamina onshore gas development taking place which
illustrates some of the technical problems in some
Indonesian gas fields. Three fields are to be developed
through a central processing plant (CPP) .
• However the fields contain around 21% carbon dioxide
which is reduced to 15% once the fields are processed
through the CPP. It is then required to inject the carbon
dioxide in a suitable reservoir.
• Recent study indicated that one reservoir was not
completed sealed and could result in carbon dioxide
leakage. The other potential reservoir was of insufficient
size to store the required amount of carbon dioxide. At
this stage, therefore, there is no technical solution to the
safe disposal of the carbon dioxide.

12. 12
Jawa Timur region – successful developments
• Access to pipeline infrastructure
• Large reserve basis
• Productive wells
• Access to large customer base

13. 13
Tirang Sirasun Batar

14. 14
BD Gas field development

15. 15
Kalimantan – supply shortage?

16. 16
Kalimanatan – the problem of contract expiry
and new technology but CBM has a role
• The existing supply shows a very steep decline. However
there is still significant potential for additional recovery in
the existing Tunu field. However this additional recovery
would require significant additional investment in new
platforms and wells. As the licence expires in four years
time, this will not allow recovery of this investment by
the current owners.
• There is a huge potential through the development by
Chevron of five gas fields in very depth water called the
Indonesia Deepwater Development. The Bangka field in
3,200 feet of water would be tied back to the existing
west Seno Floating Production Unit.
• There is significant potential in the longer term for coal
bed methane (CBM) projects to be further developed in
Kalimantan with initial production having started in 2011

17. 17
Mahakam licence…

18. 18
Chevron Deepwater Development

19. 19
CBM commitment wells

20. 20
CBM impediments
The main impediments to the successful development of
an Indonesian CBM programme appear to be the
following:
• An number of the blocks have been awarded to
companies without the financial, technical or operational
capacity to carry out the work programme commitments
• There is limited availability of purpose build CBM drilling
rigs with conventional rigs being expensive to use and
there is a shortage of coring and formation evaluation
services
• Land use applications are slow to be resolved and access
to some areas (such as forests) is difficult
• There is no dedicated government authority for CBM and
the recent constitutional court ruling has further delayed
the provision of such an authority

21. 21
Indonesian fiscal terms – the model field
• The field that is modelled is similar to the offshore
Kepodang gas field currently being developed by
Petronas in the Muriah block off Central Java.
• The hypothetical field is around 180 km from shore and is
in water depths of 70 metres and has reserves of 400 bcf.
• The field has a central processing platform and wellhead
platform.
• Total capital investment including exploration is $645
million

22. 22
Profit sharing

23. 23
Government take comparison

24. 24
Subsea wells

25. 25
Policy Recommendations
• The continued delay in the completion of the Kalimantan-Java
pipeline has contributed to a gas shortage in Java. It has also
prevented the development of fields on the route of the
pipeline meaning that expensive oil rather than gas has been
used in a major power plant. The Government should
undertake an immediate investigation into the failure of the
tender process in getting this pipeline constructed.
• The Government has failed to develop a workable policy on
how to deal with contract expiries. As Indonesia was the first
country to use PSC arrangements it is not surprising,
therefore, that it is the first country to have to deal with their
expiry. The failure of the Government to deal with this issue
has led directly to a reduction in development with a resultant
reduction in gas production. Resolution of this issue should
be an immediate requirement of the Government

26. 26
Policy Recommendations
• The major companies are particularly strong in delivering
complex massive developments. However they are weak
in developing smaller incremental reserves adjacent to
their major developments. The Government should
consider re-licensing undeveloped discoveries to
independent international companies as well as to local
companies with sufficient technical and financial
resources.
• There appears to be a lack of use in modern technology
such as subsea wells in Indonesia. The Government
should consider setting up a specific technical institute
to support the development of this type of work.

27. 27
Policy Recommendations
• Although in general the Consultant has found that
Indonesian fiscal terms are regionally competitive it
should consider where appropriate in offering better
terms for particularly difficult projects such as those
involving gas with a high CO2 content.
• The Consultant is proposing that a dedicated
Government authority for CBM be set up both to
support this emerging industry but also to resolve
development issues