Pertamina boosts upstream spending [NGW Magazine]
Indonesia's state-owned oil and gas company Pertamina plans to increase its upstream spending by as much as 25% next year, to a maximum of $3bn from $2.4bn in 2017, despite losses downstream.
The increasing capital expenditure is in line with the company's target to hike its crude output to 414,000 barrels/day.
Gas production however is falling and it may be down to foreign investors to provide the missing gas: changes to the tax rules have already encouraged Italy’s Eni to take the plunge (see box).
The senior vice president of Pertamina's strategic planning and operation evaluation Meidawati said: “Overall, we plan to spend $2.5-3bn on upstream next year. We will first ask the approval of the ministry for state-owned enterprises. The investment will depend on production. The upstream task is to keep exploring even in difficult conditions in order to replace our production." Without exploration success, its reserves will decline further and imports will rise, hitting the state budget.
The company has recently issued a global bond worth $750mn with an interest rate of 6.5%/yr and maturity on November 7, 2048. Pertamina will use the proceeds to finance its capital expenditure and other corporate purposes. The company is trying to realise these projects, although it estimates it will face losses totalling rupiah 24 trillion ($1.64bn) throughout 2018 in its downstream business.
Pertamina's oil and gas production as of September this year reached 384,000 b/d and 3.060bn ft³/d, respectively. Its realised crude production has been rising since 2014, when it produced 270,000 b/d in 2014, 278,000 b/d in 2015, 312,000 b/d in 2016 and 342,000 b/d in 2017. The company aims to produce 1.9mn boe/d by 2025, comprising 822,000 b/d of crude and 5.71bn ft³/d of natural gas.
Although Pertamina has shown a good performance with oil production, the company expects its gas output next year to decline to 2.069bn ft³/d, down 32.5% compared with the target for this year of 3.069bn ft³/d, Meidawati said.
The drop in production is mostly due to lower reservoir pressure in South Sumatra and Mahakam. Since Pertamina took over the operatorship of Mahakam block from the operator Total, saying the French company had not invested sufficiently in output, it too has failed to increase the production rate. It has been producing since the 1970s.
SKK Migas has said that the Mahakam block produced 916mn ft³/d of natural gas over January-June 2018 or 83% of its 2018 production target of 1.1bn ft³/d. Since then it has fallen further, at 851mn ft³/d as of November 17. Even SKK Migas expected that Mahakam's gas production will end the year at 844mn ft³/d throughout 2018, a significant drop compared with the 2017 realised production of 1.360bn ft³/d.
Pertamina through its indirect subsidiary PT Pertamina Hulu Mahakam, so-called PHM, took over 100% operatorship of the Mahakam block with effect from January 2018, from the previous operator French Total and Japan's Inpex who had each owned a half of it.
Pertamina plans to spend $75.3mn on Mahakam over three years, starting 2018. Based on Pertamina's assessment, the Mahakam block's gas output in 2019 may reach 1.207bn ft³/d; rise to a peak of 1,268bn ft³/d in 2020; and then dip to 1.267bn ft³/d in 2021 and 1.218bn ft³/d in 2022. In 2023, the output may decline to 1.11bn ft³/d. Condensate production may reach 42,000 b/d in 2019, 43,184 b/d in 2020, 41,850 b/d in 2021 and 39,451 b/d in 2022.
Pertamina shipped its first LNG cargo from the Sanga-Sanga block in east Kalimantan earlier in November. The company took the block back from Vico Indonesia, a joint venture between UK BP and Italy's Eni, August 8 when the contract expired. Sanga-Sanga's gas production is processed at the Bontang LNG plant.
Indonesia sold 205 LNG cargoes in the first nine months of the year from its Tangguh and Bontang plants. Of that, 169 cargoes went for export and 36 for the domestic market. The target for sales this year is 274 cargoes, comprising 229 for export and 45 cargoes for domestic use, according to SKK Migas.
The Bontang LNG plant is expected to produce 156 cargoes this year, an increase from 140 cargoes in 2017, thanks to additional gas supply from Eni's Muara Bakau block. Meanwhile BP is expected to produce 119 LNG cargoes in 2018-2020 from its Tangguh project in Papua province.
BP is in the process of building Tangguh's third train with a capacity of 3.8mn metric tons/year, similar to the other two trains. It will allow the total capacity of Tangguh LNG to reach 11.4mn mt/year. The final investment decision for the Tangguh Train 3 is worth $$8billion and is expected to be on stream by 2020
Indonesia’s LNG export plants comprise the 7.6mn mt/yr Tangguh plant, the 22.5mn mt/yr Bontang plant and the 2mn mt/yr Donggi Senoro LNG plant in central Sulawesi. Arun LNG was some years ago converted into an LNG import terminal.
Pertamina hopes to increase its crude production by 3.5% to 414,000 b/d in 2019 from 400,000 b/d this year. The additional production will come mainly from Cepu's Banyu Urip field in east Java and Algeria, which it part-owns with the US major ExxonMobil and some local partners, according to Meidawati. Oil output in Algeria (Block 405a) is expected to go up to 112,000 b/d in 2019 from 108,000 b/d now, Meidawati said.
Besides that, Pertamina holds 45% stakes in the Cepu block, along with US' ExxonMobil (45%). Indonesia's upstream regulator SKK Migas has said that the Cepu block is expected to produce 220,000 b/d next year from current production of about 205,000 b/d. Meanwhile the upstream subsidiary Pertamina EP is estimated to be able to pump its output to 82,000 b/d next year from 77,934 b/d in 2018, which contributes to Pertamina’s total output.
The company may be able to achieve the target, as the government has given one of the biggest Indonesia's oil blocks to Pertamina, namely Rokan block in central Sumatra. Pertamina will take over the block from US' Chevron Pacific Indonesia once its contract expires in 2021. The block is expected to produce 206,710 b/d throughout this year, lower from the realised production last year of 224,690 b/d. Meanwhile SKK Migas estimates the block's production may decline to 180,000 b/d in 2019. But Pertamina will need enhanced oil recovery to pump the crude.
Eni scores hat-trick
Eni announced December 19 that it has made a gas discovery at its Merakes East prospect in East Sepinggan block, offshore Kalimantan in Indonesia. It is the third consecutive successful result for the Italian operator in the country and came a few days after it took final investment decision on Merakes.
The prospect is 33 km southeast of the Eni-operated Jangkrik field whose infrastructure it will use; and just 3 km east of its existing Merakes field. The well has been drilled to a depth of 3,400 metres in 1,592 metres of water depth and encountered 15 metres of gas bearing net sands at two distinct levels. A production test, which was limited by surface facilities, recorded excellent gas deliverability, Eni said, adding that analysis of test data showed that the well can deliver 70mn ft3/d gas (0.72bn m3/yr) and 1000 b/d condensate.
Eni said the proximity of this new find to the Merakes field, was "in line with Eni near-field exploration and will allow [us] to maximise the synergies among the subsea infrastructures as well as reduce costs and the time of the execution of future subsea development.”
Eni's final investment decision had in turn come just days after the conversion to the gross split scheme of the East Sepinggan production-sharing contract; and the approval of the revised field development plan by the energy ministry.
The gross split scheme is a new invention brought in to make offshore operations more attractive when there is no infrastructure. Investors pay tax only when profits have reached a pre-arranged level.
Eni CEO Claudio Descalzi said the FID was "an important part of its strategy in southeast Asia aimed at increasing both our presence and our production only through organic growth. In order to do so, we will leverage on exploration, which will enable us to increase our reserves first, and then our gas production thanks to the optimisation of existing facilities and complying with the strictest time-to-market.” He said the Indonesian domestic market is growing fast and Eni that would continue to support it.
This development will also strengthen Eni’s technological and operations leadership in the development of deep-water gas fields in Indonesia, it said.
Eni operates the East Sepinggan Contract Area with an 85% interest, while state-owned Pertamina holds the other 15%. Production activities are in the Kutei Basin, East Kalimantan, mainly through Jangkrik field, in the Muara Bakau working area, that delivers production in excess of 650mn ft3/d (6.7bn m3/yr). Its gas is liquefied at the Bontang LNG export complex, and this gas will help extend the plant’s life.