Indonesia's expiring production licenses valued at $10 billion

Indonesia's expiring production licenses valued at $10 billion

In a recent report, Indonesia's expiring PSCs: $10 billion of potential
upstream value, Wood Mackenzie valued Indonesia's expiring oil and gas
production licenses or production sharing contracts (PSCs) at close to $10
billion.

These 35 licenses account for over 1 MMboed of production in 2016 and will
face expiration in the next decade. The lack of clarity on license
extensions, and the scale of production at risk, make expiring PSCs one of
the biggest issues facing Indonesia's upstream sector.

Wood Mackenzie expects Indonesia's national oil company Pertamina to play a
key role in expiring assets with strategic value to the country, given its
interest to meet aggressive near (863,000 boed in 2017) to mid-term (2.2
MMboed in 2025) production targets.

Alex Siow, upstream research analyst, said, "Assets such as Offshore
Mahakam, Corridor and Jabung would be of interest to Pertamina as these are
material gas exporting projects with exposure to LNG and piped gas
contracts. Corridor and Jabung connect to the lucrative Singapore and West
Java markets, while Offshore Mahakam supplies LNG through the fully
depreciated Bontang liquefaction plant.

"Given financial and technical constraints, Pertamina could take on
operatorship in cooperation with service companies with the ability to
manage and produce under an integrated project management structure. Taking
up minority interest in more technically challenging projects will also
allow it to develop the skills needed on its own assets as they near
end-of-life."

The 35 licenses provide opportunities to a variety of players, from
experienced domestic players to new start-ups with new strategies, and fall
under four main categories: mature projects with upside, enhanced oil
recovery (EOR), late-life fields, and discovered resource opportunities
(DRO).

Mature projects with upside, such as Offshore Mahakam, Corridor and Jabung,
which account for over 80% of expiring PSCs, have extensive infrastructure
already in place and the potential to deliver stable cash flow. These
projects will be most suited for large, experienced operators.

EOR opportunities will require specialist expertise and advanced technology
to unlock remaining reserves and value via thermal, gas or chemical
injection. Chevron's Rokan, expiring in 2021, is one of the world's largest
steam injection projects and produces over 200,000 boed. However, the block
needs over $2.7 billion of investment annually to maintain output and
mitigate field decline.

Late-life assets offer potential for companies that can manage old
facilities and improve operational efficiency. These old fields also come
with potential decommissioning liabilities, which must be taken into
consideration. The biggest three, Sanga Sanga, South East Sumatra and East
Kalimantan, will expire in 2018.

DROs need a commercial solution to either challenging reservoir conditions,
difficult project economics or a lack of market demand, but may offer the
most straightforward opportunity for companies trying to build development
experience. However, the time to recoup investment can be much longer,
particularly given Indonesia's bureaucratic regulatory environment.

Indonesia's liquids production is expected to fall to a new low of 780,000
boed. With only a handful of new development projects in the pipeline, the
country is in dire need of fresh investment to reverse the impending decline
in oil and gas output.

The significant number of expiring licenses are a vital opportunity that if
used properly, can serve to revitalize the corporate landscape and inject a
fresh lease of life into many of the blocks. However, the Energy Ministry,
SKK Migas and Pertamina will need to align to ensure the continued survival
of the E&P industry in Indonesia.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Link to Original Article:
http://www.worldoil.com/news/2016/11/29/indonesias-expiring-production-licen
ses-valued-at-10-billion

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com