OIL AND GAS INDUSTRY MULTIPLIER EFFECT

OIL AND GAS INDUSTRY MULTIPLIER EFFECT Upstream oil and gas sector has a multiplier effect on the growth of the national economy, ranging from the use of local products to transactions through national banking. This sector is one of the major contributors to the national economic growth reaching US$ 23.7 billion in 2016. CONTRIBUTION OF UPSTREAM OIL AND GAS SECTOR TO GDP Local Procurement (US$ billion) 60% 57% 54% 68% 48% Every investment of US$1 MILLION 5.1 11.5 4.6 9.3 5.5 11.8 2.6 5.3 2.5 3.1 Upstream oil and gas GDP in 2016 Creating added value of US$ 1.6 MILLION Additional GDP of US$ 0.7 MILLION 2012 2013 2014 2015 2016 n Goods Services The ratio of local content to the expenditure Transactions through the National Banking System (US$ billion) 9.3 8.2 12.4 3 9.7 US$23.7BILLION contributing 3.3% to GDP Creation of job opportunity of ± 100 PEOPLE SOURCE: SKK MIGAS, BANK INDONESIA 2012 2013 2014 2015 2016

OIL AND GAS INVESTMENT DECREASES REGIONAL ECONOMIES SLOW DOWN Oil and gas sector has caused an economic slowdown in a number of producing regions in which this sector is a major contributor to the economic growth. Rokan Hilir, Riau 2015:1.0 % 2014: 4.1% Bengkalis, Riau Kampar, Riau 2015:-2.7 2015:1.1 2014: -3.9 2014: 3.4 Siak, Riau 2015:-0.2 2014: -1.0 Tanjung Jabung Timur, Jambi 2015:1.9 2014: 5.8 Musi Banyuasin, South Sumatra 2015:2.3 2014: 4.7 Natuna, Riau Island 2015:3.3 2014: 3.5 Kutai Kartanegara, East Kalimantan 2015:-7.6 2014: -1.5 Penajam Paser Utara, East Kalimantan 2015:0.2 2014: 4.4 Sorong, West Papua 2015:2.3 2014: 3.1 Economic growth SOURCE: BPS, MINISTRY OF FINANCE

OIL AND GAS EXPLORATION SHIFTS TO DEEPWATER AREAS Upstream oil and gas activities in Indonesia have begun to shift from old onshore fields to offshore and deepwater areas. Most oil and gas reserves potential is still largely unexplored, although over the last three years, offshore oil and gas working areas (WK) have always dominated the Government auction. INDONESIA S HYDROCARBON POTENTIAL 70% of oil and gas reserves are located in offshore areas Conventional Work Areas Offered 3 4 5 1 0 2 9 4 7 2014 2015 2016 n Onshore Onshore-Offshore n Offshore Deep Sea Exploration Challenges Expensive investment cost Drilling of one well costs US$ 80-100 million Basins already in production (16 areas) Basins with hydrocarbons found, not yet in production (7) Basins not yet explored (22) Drilled basins, hydrocarbon not yet found (15) SOURCE: MEMR, WOOD MACKENZIE, REUTERS, KATADATA Low investment rate of return (IRR) IRR projects in Indonesia are 55% lower than the average IRR of 30 global deepwater gas projects Long exploration period 10 years

LICENSING ISSUES HAMPER OIL AND GAS INVESTMENT Licensing is one of the major barriers to investment in the upstream oil and gas sector. In addition to the large number of licences required, the procedures to obtain them take a long time. Data from The Coordinating Ministry for The Economy, as of February 2017, indicates 373 types of licences needed from 19 central and regional institutions. LICENCE COMPLEXITY FROM MINISTRIES/AGENCIES 137 Developments and Constructions Increased MEMR 74 (52) 76 (58) 16 (14) Note: () in 2015 Transportation Min. Stayed the Same Finance Min. Labour Min. 16 (14) Navy 9 (2) Defense Min. 4 (3) Public Works Min. 2 (-) MMAF 2 (-) 373 LICENCE TYPES Increasing from 341 (2015) Police 19 Reduced Information Min. 11 Law Min. 4 Land Min. 3 Industry Min. 3 Nuclear Agency 3 Private Land Owner 2 Regency/City Province Environment Min. Trade Min. 117 Survey and Exploration 10 Post-Operation Activities 109 Production 53 (66) Note: () in 2015 29 (35) 36 (40) Impacts of Complex Licensing Expensive production cost 11 (12) Increase of Cost recovery Prolonged production activities SOURCE: THE COORDINATING MINISTRY FOR THE ECONOMY, SKK MIGAS

INVESTMENT DECREASES, OIL AND GAS RESERVES SHRINK The fall in crude oil prices occurring since mid-2014 caused oil and gas contractors to improve efficiency, including by reducing investment spending. As a result, the national oil and gas reserves decreased due to the lack of exploration activities. EXPLORATION AREA AND RESERVES DECREASE Exploration Areas Oil Reserves (million barrels) Gas reserves (TSCF) 233 238 235 228 199* 3.741,3 103,3 3.692,5 101,5 3.624,5 100,3 3.602,5 98,0 3.306,9 101,2 110 Active Work Areas of oil and gas 52 Unconventional Work Areas of oil and gas 37 Work Areas in termination process 2012 2013 2014 2015 2016 Exploration Investment Decreases (US$ Billion) 1,3 1,4 1,1 0,5 0,1 2012 2013 2014 2015 2016* *) Data as of November 2016 SOURCE: SKK MIGAS. MEMR Causes of Investment Decline Oil price decline Period of discovery to production takes 15 years Land acquisition constraints and lengthy licensing bureaucracy Low in return Constraints in extension of the working areas and legal certainty Low ratio between reserve replacement and successful exploration.

INDONESIAN OIL AND GAS INVESTMENT CLIMATE RANKS THE LOWEST IN ASEAN The 2016 Policy Perception Index Survey released by the Fraser Institute shows the oil and gas investment climate in the country is less competitive compared to neighbouring countries. The declining attractiveness of the investment climate can be seen from the reducing number of parties interested in the auction of oil and gas working areas (WK) in the last two years. Myanmar Rank* RRR** (2009-2013) Thailand Malaysia Cambodia 67 51% 72 No discovery and production since 2005 Vietnam 42 161 38 221 41 141 SOURCE: MEMR, WOOD MACKENZIE, FRASER INSTITUTE, SKK MIGAS, MEDIA COVERAGE katadatanews katadatanews WK Auction Lacks Enthusiasts* 52 45 50 18 33 21 6 11 11 17 0 0 2012 2013 2014 2015 n Total number of areas offered n Total number of winners *) Conventional and unconventional 2016 Brunei Darussalam 31 141 Indonesia *) of 96 jurisdictions **) R eserves Replacement Ratio: The amount of proved reserves added to the reserves base compared to the amount of production @KATADATAnews Philippines 79 51 Factors that are being evaluated among others include high taxes; the burden of regulatory obligations; uncertainty of environmental regulations and upstream oil and gas industry regulations; and also concerns about political and security stability.

LARGE FUNDS NEEDED TO MAINTAIN PRODUCTION The Ministry of Energy and Mineral Resources has handed over to Pertamina the management of eight oil and gas Blocks of which contract period expires in 2017-2018 and these eight Blocks require a lot of funds. Up until 2021, there are 17 other Blocks that will be terminated. 7. North Sumatra Offshore PHE NSO October 15 th, 2018 0,1 thousand bpd 20,2 mmscfd 2. Ogan Komering JOB Pertamina - Talisman Ogan Komering February 28 th, 2018 2,1 thousand bpd 6,3 mmscfd 8. East Kalimantan Chevron Indonesia Company October 25 th, 2018 12,1 thousand bpd 68,1 mmscfd Funds Needed (US$ MILLION) 1910 25 Terminated Blocks 412.3 8 blocks US$ 13,26 million bpd : barrel per day mmscfd : million standard cubic feet per day 5. South East Sumatra CNOOC SES Ltd September 5 th, 2018 30,9 thousand bpd 70,9 mmscfd US$ 229,5 million US$ 1,1 million 3. Tuban JOB Pertamina- Petrochina East Java Ltd US$ 56,4 million 4. Sanga-Sanga Virginia Indonesia Company (VICO) 1. Attaka INPEX Corporation March 31 st, 2017 6,6 thousand bpd n/a US$ 4,9 million 6. Tengah Total E&P Indonesie Note: February 28 th, 2018 August 7 th, 2018 October 4 th, 2018 Operator End of Contract Oil Gas Estimated operating expenses in a year 3,4 thousand bpd 2,3 mmscfd 14,9 thousand bpd 200,2 mmscfd n/a n/a SOURCE: MEMR, WOOD MACKENZIE, KATADATA US$ 1,7 million US$ 105,4 million n/a

OIL AND GAS LIFTING THREATENED BY FURTHER DECLINE In the next 5 years, as many as 25 oil and gas blocks will end their contract period. If the transfer process for the Blocks is not prepared now, this situation has the potential to decrease the national oil and gas daily lifting rates. POTENTIAL DECLINE IN OIL & GAS LIFTING 107 1756 9 84 251 49 LIFTING PORTION OF 25 TERMINATED OIL AND GAS BLOCKS 820 2017 4 oil and gas blocks Offshore North West Java Mahakam Lematang Attaka 2018 4 oil and gas blocks Jambi-Merang Pendopo & Raja Bula Seram-Non Bula 2019 3 oil and gas blocks Bentu Segat Rokan Selat Panjang 2020 65 390 14 22 2021 374 6685 4384 2016 2021 2016 2021 8 oil and gas blocks Tuban Ogan Komering Sanga-Sanga South East Sumatra B Block Tengah NSO/NSO Ext East Kalimantan 6 oil and gas blocks Makassar Strait Offshore Area A South Jambi Block B Brantas Salawati Kepala Burung Malacca Strait Note: Oil (thousand barrels per day) Gas (million cubic feet per day) SOURCE: MEMR, SKK MIGAS

OIL AND GAS JOB OPPORTUNITIES ARE SCARCE The declining interest in oil and gas investment in Indonesia has resulted in a decrease in the recruitment of new workers in the sector. As a result, graduates with technical qualifications in the field of oil and gas have slim chance to work and fulfill their potential. The same situation has also occurred overseas as many global oil and gas companies have been carrying out efficiency measures. INDONESIA S MINING STUDENTS 2016 Reduced Investment, Limited Employment Petroleum Engineering Geophysical Engineering Geological Engineering Mining Engineering 20,4 15,6 10,4 32.292 31.745? 30,357 5,469 Students GLOBAL DRILLING ACTIVITIES DROP students in 9 universities 2,644 8,074 14,170 students in 16 universities students in 31 universities students in 37 universities 2014 2015 2016 n Investment (US$ billion) n Work Force Causes of Investment Reduction 3,657rig (October 2014) SOURCE: MINISTRY OF TECHNOLOGY RESEARCH AND HIGHER EDUCATION, SKK MIGAS, BAKER HUGHES 1,620rig (October 2016) Efficiency Low oil prices Less attractive investment climate Selective investing

INDONESIA S FISCAL INCENTIVES LESS COMPETITIVE Oil and gas exploration targets in Indonesia have been shifting from onshore to deepwater offshore locations which are much more expensive. Oil and gas producing countries must offer fiscal incentives to attract investment in a low oil price environment. From a global investors perspective, Indonesian deepwater prospects are less attractive compared to other countries. INDONESIA LESS ATTRACTIVE 45% Country IRR post FID (%) Government Share pre-npv (%) Top 10 Deepwater Destinations* Country Deepwater acreage awarded (000 km 2 ) Investor Investment Rate of Return (IRR) post FID (Final Investment Decision) 40 35 30 25 PSC Gross Split 20 20% 40 60 80 100 Government share pre-npv UK Ireland Papua New Guinea Canada Mauritania Mozambique Australia Indonesia PSC Indonesia gross split PSC 41.5 40.3 38.2 33.9 32.8 31.0 30.4 24.8 22.3 40.1 43.2 37.7 58.9 58.7 63.9 64.7 73.9 78.7 Canada 27,778 Papua New Guinea 14,750 Cyprus 11,665 Cote d Ivoire 9,300 Ireland 8,963 Australia 8,248 Norway 7,218 Mozambique 5,288 Mauritania 4,300 UK 3,527...... Indonesia 0 * Since 2016, only BP, Chevron, Eni, ExxonMobil, Shell, Statoil, Total SOURCE: WOOD MACKENZIE