Ministry of Energu and Mineral Resources Indonesia Oil and Gas Policy Reform Houston, March 2018 1
Background 2
Reserve Replacement Ratio Thailand Indonesia Reserve Replacement (2011-2015) Reserve Replacement Ratio India Australia Malaysia Vietnam 0% 50% 100% 150% 200%
Time to First Production (since first discovery)
Indonesia Oil and Gas Production Oil and Gas Production Thousand barrel oil equivalent per day (mboepd) Oil Production Thousand barrel oil per day (mbopd) 1,000 Gas 950 965 945 930 900 850 955 840 818 825 820 815 Oil 1.5 mio bopd 800 750 902 861 825 794 779 829 804 700 2010 2011 2012 2013 2014 2015 2016 2017 Realisasi target APBN
Government Revenue VS Cost Recovery Billion US$ Indonesia Government effort to promote cost efficiency in oil and gas sector: Govt revenue in 2017 was higher than cost recovery Cost recovery in 2017 was lower than 2016 Government take
WK - 2 80.00% 70.00% 60.00% 50.00% Percenateg to GR 40.00% 30.00% 20.00% 10.00% 0.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 PNBP 56.29% 56.23% 61.60% 50.78% 57.24% 53.13% 47.15% 49.52% 41.05% 20.49% 31.28% PPH 6.63% 6.35% 6.45% 5.99% 7.46% 7.30% 6.09% 6.71% 4.44% 5.17% 7.85% Contr Take 7.16% 6.91% 7.00% 6.49% 8.09% 7.90% 6.60% 7.26% 4.81% 5.98% 8.50% Cost Recovery 29.92% 30.51% 24.95% 36.75% 27.21% 31.67% 40.15% 36.51% 49.70% 68.35% 52.37%
WK - 3 90.00% 80.00% 70.00% 60.00% 50.00% Percenateg to GR 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% 2010 2011 2012 2013 2014 2015 Q3-2016 PNBP 14.64% 22.07% 63.98% 59.48% 53.74% 17.42% 26.80% PPH 0.00% 0.70% 7.29% 6.22% 6.04% 9.63% 14.40% Contr Take 5.36% 0.90% 9.27% 8.45% 7.69% -7.06% 5.89% Cost Recovery 80.00% 76.34% 19.46% 25.86% 32.53% 80.00% 52.91%
WK - 5 80.00% 70.00% 60.00% 50.00% Percenateg to GR 40.00% 30.00% 20.00% 10.00% 0.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 PNBP 42.58% 42.58% 44.72% 40.43% 42.22% 42.60% 40.35% 38.47% 35.92% 29.72% 29.26% PPH 19.83% 19.05% 20.54% 17.95% 19.56% 19.99% 19.09% 18.13% 16.38% 14.24% 13.21% Contr Take 21.50% 21.16% 22.14% 19.43% 21.18% 21.65% 20.66% 19.64% 17.43% 15.42% Cost Recovery 16.09% 17.21% 12.60% 22.20% 17.03% 15.76% 19.89% 23.77% 30.27% 40.62% 43.25%
WK - 7 80.00% 70.00% 60.00% 50.00% Percenateg to GS 40.00% 30.00% 20.00% 10.00% 0.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 PNBP 50.46% 35.64% 54.25% 43.13% 43.72% 44.10% 41.01% 35.45% 35.04% 31.85% PPH 14.26% 17.68% 15.41% 15.72% 14.84% 13.97% 18.35% 15.02% 14.82% 18.49% Contr Take 10.76% 12.05% 15.07% 17.03% 15.47% 14.97% 18.29% 16.89% 16.05% 20.34% 11.51% Cost Recovery 24.52% 34.63% 15.27% 24.12% 25.96% 26.96% 22.34% 32.63% 34.09% 29.31%
Indonesias Challenge INVESTMENT OF UPSTREAM OIL & GAS US$ billion 1. Declining upstream oil and gas investment 2. Shirinking of oil and gas reserves 3. Exploratoin activities EXPLORATION ACTIVITIES (DRILLING) ICP $/bbl Oil-barrel OIL AND GAS PROVEN RESERVES Gas-TCF
GROSS SPLIT Scheme 14
Gross Split Principle 1 2 3 Certainty à The incentive parameter is transparent and measurable according to the character / level of complexity of field development. Simplicity à Encourage simplification and accountability business process between K3S and SKK Migas. Thus the bureaucratic procurement system and the debates that have occurred so far can be reduced. Efficiency à Encourage oil and gas contractors (K3S) and oil and gas supporting industries to be more efficient so they able to cope with oil price fluctuations.
PSC Gross Split
Base Split Oil Gas Government 57% Contractor 43% Government 52% Contractor 48%
Incentive in PSC Gross Split (1) Variable Component Criteria 1 Field Status Cont. Split Correction POD 1 5% POD 2 dst 3% No POD 0% 2 Field Location Criteria Cont. Split Correction Onshore 0.0% Offshore (0<h 50m) 8.0% Offshore (20<h 50m) 10.0% Offshore (50<h 150m) 12.0% Offshore (150<h 1000m) 14.0% Offshore (>1000m) 16.0%
Incentive in PSC Gross Split (2) Variable Component 3 Reservoir Depth Criteria Cont. Split Correction 2500 m 0% > 2500 m 1% 4 Infrastructure Criteria Cont. Split Correction Well developed 0% New Frontier Offshore 2% New Frontier Onshore 4% 5 Reservoir Condition Criteria Cont. Split Correction Conventional 0% Non Conventional 16%
Incentive in PSC Gross Split (3) Variable Component 6 CO2 Impurities (%) Criteria Cont. Split Correction <5% 0.0% 5% x<10% 0.5% 10% x<20% 1.0% 20 x<40% 1.5% 40% x<60% 2.0% x 60% 4.0% 7 H2S Impurities (ppm) Criteria Cont. Split Correction <100 0.0% 100 x<1000 1.0% 1000 x<2000 2.0% 2000 x<3000 3.0% 3000 x<4000 4.0% x 4000 5.0% 8 Spesific Gravity Oil (API) Criteria Cont. Split Correction API<25 1% API 25 0
Incentive in PSC Gross Split (4) Variable Component 9 Local Content Criteria Cont. Split Correction <30% 0 % 30% x<50% 2.0% 10 Production Phase Criteria Cont. Split Correction Primary 0% Secondary 6% Tertiary 10% 50% x<70% 3.0% 70% x<100% 4.0%
Incentive in PSC Gross Split (5) Progressive Component 11 Cumulative Production Criteria Cont. Split Correction <30 mmboe 10.0% 30 x<60 mmboe 9.0% 60 x<90 mmboe 8.0% 90 x<125 mmboe 6.0% 125 x<175 mmboe 4.0% 175 mmboe 0.0%
Incentive in PSC Gross Split (6) Progressive Component Split Correction Calculation ICP (US$/bbl) Cont. Split Oil Price Split correction from oil price is adjusted based on the formula ICP: Indonesia Crude Price (85-ICP) x 0.25% 40 11.25% 45 10.00% 55 7.50% 65 5.00% 85 0.00% 95-2.50% 105-5.00% 115-7.50% Gas Price Split correction from gas price is adjusted based on the formula Gas Price (US$/mmbtu) Criteria Cont. Split <7 (7-Gas Price) x 2.5% 7 x 10 0.0% >10 (10-Gas Price) x 2.5% Split Correction Calculation Gas Price (US$/mmbtu) Cont. Split 5 5.00% 6 2.50% 7 0.00% 10 0.00% 11-2.50% 12-5.00%
Economic Analysis Results (1) - IRR 40.00% 35.00% 30.00% Cost Recovery Old GS (MR 8/2017) New GS (MR 52/2017) 8/2017) 25.00% IRR (%) 20.00% 15.00% 10.00% 5.00% 0.00% 1 2 3 4 5 6 7 8 9 10 11 12 Field Notes: Field 2: 5% cost efficiency and 2% Discretion Field 7: 5% cost efficiency and 1% Discretion Field 11: 5% cost efficiency and 7% Discretion Field 3: 5% cost efficiency and 5% Discretion Field 10: 5% cost efficiency Field 12: 5% cost efficiency and 3% Discretion
Economic Analysis Results (2) - NPV 1,000,000 800,000 600,000 Cost Recovery Old GS (MR 8/2017) New GS (MR 52/2017) USDM 400,000 200,000 - (200,000) 1 2 3 4 5 6 7 8 9 10 11 12 Field Notes: Field 2: 5% cost efficiency and 2% Discretion Field 7: 5% cost efficiency and 1% Discretion Field 11: 5% cost efficiency and 7% Discretion Field 3: 5% cost efficiency and 5% Discretion Field 10: 5% cost efficiency Field 12: 5% cost efficiency and 3% Discretion
Gross Split Fiscal Incentive Government Regulation 53 2017 From exploration to first production, contractors are exempted for the following tax : Others incentives: 1 Import Duty 1 Accelerated depreciation 2 VAT 2 10 years loss carry forward 3 Land and Building (LBT) Tax
Impact of GROSS SPLIT 27
Oil and Gas Bid Round 2017 and 2018 5 out of 10 Working Area was awarded to investors 5 working areas that are awarded in 2017: Andaman I Pekawai Merak-Lampung Andaman II West Yamdena Oil and Gas Bid Round in 2015 & 2016 with cost recovery scheme was not successful in attracting investor 18 5 Conventional Oil and Gas Bid Round 14 13 10 8 8 5 24 0 0 2013 2014 2015 2016 2017 2018 Offer Award
Others O&G Policy Reform 29
Certainty of Capex Recovery During Contract Tail Period Ministerial Regulation 47 2017
Others Oil and Gas Policy Reform 1. Simplification of permit process (deregulation) 2. Transfer of firm commitment. 3. Asset transfer to other contractor. 4. Land acquisition by Government through SKK Migas (Special Task Force for Upstream Oil and Gas Bussiness). 5. Land acquisition through lease. 6. Free and Open Access for Oil & gas Data.