Upstream Investment is Expected to be Enthusiastic

    It is hoped that upstream oil and gas investment in Indonesia will revive following the increase in oil prices in the last few days. The increase in world oil prices has an impact on the increase in Indonesian oil prices.

    Based on Bloomberg data on Thursday's trading (20 / October), the price of Brent oil was US $ 52.57 per barrel and WTI US $ 51.41 per barrel. This price is the highest in the last year. The increase in price was triggered by the decreasing supply factor in the United States. On February 11, 2016, WTI reached its lowest price in the past year, namely 26.21 US dollars per barrel.

    The lowest price for Brent in the past year on January 20, 2016, was 52.88 US dollars per barrel. Director-General of Oil and Gas at the Ministry of Energy and Mineral Resources (ESDM) I Gusti Nyoman Wiratmaja said that the increase in world oil prices has an impact on Indonesia's crude price / ICP.

    This condition is expected to stimulate upstream oil and gas investment in Indonesia. If the world oil price rises, practically the ICP will also increase. This means that state revenues will also increase. In addition, I hope this increase will stimulate upstream investment in Indonesia. This year, the government and the House of Representatives agreed to set the ICP at the US $ 40 per barrel. In the preparation of the 2017 State Budget (APBN), the ICP benchmark was raised to 45 US dollars per barrel.

    Based on data from the Ministry of Energy and Mineral Resources, the ICP in September 2016 amounted to 42.17 US dollars per barrel, up from the August 2016 price of 41.11 US dollars per barrel. The lowest ICP this year was 2749 US dollars per barrel in January.

"If the trend of world oil prices continues to rise, it will be in accordance with our projection in the 2017 State Budget, which is around the US $ 45 per barrel for the ICP".

F    or PT Pertamina (Persero), which everyday imports around 430,000 barrels of crude oil, this price increase does not really affect the company's finances. Moreover, it is difficult to predict the continuation of this rising price trend.

"The increase in oil prices is not too significant with the budget for imports. Pertamina imports oil with a futures contract system, at least for up to six months, ”said Pertamina Vice President for Corporate Communication Wianda Pusponegoro.

Wianda Pusponegoro

    At a time when the world oil price was around 100 US dollars per barrel, the need for foreign exchange to import crude oil and Pertamina's fuel oil was 150 million US dollars to 200 million US dollars per day. The fall in oil prices since late 2014 reduced the need for US dollars to import oil by more than 50 percent. State revenue An increase or decrease in ICP has a direct effect on state revenue. In 2015, with an average ICP throughout the year of US $ 48 per barrel, the contribution of oil and gas revenues was around Rp. 136 trillion.

    This figure is much lower than in 2014, which increased revenues of IDR 320 trillion with an average ICP of 96 US dollars per barrel. The drastic drop in oil prices has also made an upstream investment in the oil and gas sector in Indonesia less attractive. In 2015, upstream oil and gas investment spending was 15.34 billion US dollars, lower than in 2014 which reached 20.36 billion US dollars. Meanwhile, spending in the first semester of 2016 was the US $ 5.56 billion.

Kompas, Page-1, Friday, Oct 21, 2016

Gas Network Project and Trimmed Converter Kit

    The Ministry of Energy and Mineral Resources (ESDM) has cut several strategic projects. Trimming the project, in order to make budget savings next year.

    ESDM Minister Ignasius Jonan said that next year his party would cut the budget ceiling by Rp. 291.59 billion so that it would be Rp. 7.3 trillion for the budget in the 2017 State Budget (APBN). This budget cut would not interfere with the performance of the Ministry of Energy and Mineral Resources.

"What is being cut is as much as possible not disturbing the development targets for 2017, particularly the ESDM sector,".

    The cut budget is part of the savings and seeing the project work that will take place.

"What we can do about it is not ready, if possible, we will move the multiyear to 2018,".

    For example, the budget cuts for the construction of a household gas network project of 15,500 household connections (SR) worth Rp. 100 billion. That way, the network to be built from 69,200 SR to only 53,700 SR next year. It consists of 10,000 SR of Musi Banyuasin in Sumatra, Muara Enim and Pali 10,000 SR, Pekan Baru Riau 3,200 SR and existing 4,000 SR, Bontang development for 6,000 SR and existing 4,000 SR, Bandar-Lampung 10,000 SR, Mojokerto 10,000 SR and Samarinda 4,500 SR. .

    According to Jonan, the area built by the network must have an economical scale with a minimum development of 10,000 SR. In addition, the gas distribution must be available when the network has been completed. 

Wianda Pusponegoro

    Wianda Pusponegoro, Vice President for Corporate Communication at Pertamina, said that regarding the gas network, Pertamina has made a lot of additional investment.

"The additional budget in one location could be around Rp. 60 billion, the standard is for 4,600 connections,".

    ESDM also cut the budget for converter kit fishermen by 4,400 units, from the original 28,400 units to 24,000 units, from Rp 100 billion to Rp 55 billion. Then cut the budget, coal gasification plant with a value of Rp. 49.7 billion.

    Jonan also said that the Ministry of Energy and Mineral Resources will cut the budget for the waste generation to 39.29 billion, from the original Rp. 50 billion. Finally, the budget cut from savings in goods and capital expenditures at the Ministry of Energy and Mineral Resources unit amounted to Rp 52.6 billion. This budget cut is mainly for operational costs.

"We are trying to reduce Rp. 52 billion, this actual number could reach hundreds of billions," explained Jonan.

Kontan, Page-14, Friday, Oct 21, 2016

ESDM Finalizes Proposed Revision of Profit-Sharing Counter

    The government is currently discussing a proposal to create a new production sharing contract (PSC) scheme. Currently, the government is comparing PSCs from other countries, such as Malaysia, Algeria, South America, and Peru, to get the best production sharing contracts.

"The idea of ​​PSC from us is that they only take, using, and modify them. We also want to see what their modifications are like, what positive effects," said Director General of Oil and Gas of the Ministry of Energy and Mineral Resources (EMR/ESDM), IGN Wiratmaja Puja.

Energy and Mineral Resources (EMR/ESDM

    Currently, the discussion regarding the PSC has not been completed. The government has a strategy to include a new PSC scheme in the implementation of Government Regulation (PP) Number 79 of 2001 concerning Refundable Operating Costs and Tax Treatment for the Upstream Oil and Gas Industry.

"We are discussing it and later in the implementation of Government Regulation number 79 it has been made flexible there,".

    Later, the PSC proposal will also be included in the revision of the Oil and Gas Law. One of the new PSC proposals is a production sharing contract without any cost recovery. The scheme is still being considered by the government.

"Some use it too, KKKS use a gross split, (cost recovery) is paid in advance, it's just that we are discussing all the positive and negative benefits. All aspects are discussed.

Kontan, Page-14, Friday, Oct 21, 2016

63 LNG Cargo Uncontracted

    Director-General of Oil and Gas of the Ministry of Energy and Mineral Resources (ESDM) IGN Wiratmaja said there are still 63 LNG cargoes that have not been contracted or uncommitted for 2017 originating from the Bontang and Tangguh Refineries in Papua. Currently, his party is still in the negotiation stage to sell 13 cargoes as part of the 63 LNG cargoes.

Energy and Mineral Resources (ESDM)

    Although the number of Liquefied Natural Gas / LNG that has not obtained the contract is very high, the government has not suggested selling the gas to the spot market. According to him, there is still an opportunity to sell liquefied natural gas to countries that have been customers so far, such as the limited regasification facilities in Indonesia, which means that LNG is not optimally purchased domestically.

    Taiwan, Korea, and Japan. "Next year there are 63 cargoes, 13 cargoes are being negotiated. We want to be sold to existing buyers, "he said after the work meeting of the Ministry of Energy and Mineral Resources with Commission VII of the House of Representatives, Thursday (20/10).

    LNG that has not been contracted is very significant because the production of several oil and gas fields is very good. However, this oil and gas field is not supported by adequate regasification infrastructure. On the other hand, LNG needs for power plants in Indonesia have been met. Based on data from the Ministry of Energy and Mineral Resources, the volume of LNG that has not been contracted in 2018 is 60 cargoes. Meanwhile, starting 2019, a supply of 27 cargoes from abroad will be needed.

    In fact, LNG imports in 2024 will increase to 90 cargoes and 101 cargoes in 2025 due to increased domestic demand. Abadi Field, Masela Block has yet to start gas production. The gas supply from the Tangguh Refinery will begin to decline in 2024. Wiratmaja emphasized that until 2019, the government will not open an import route for liquefied natural gas. 

    LNG imports are likely to open after 2019. The Ministry of Finance is cutting the budget for the construction of a household gas network and converter kits for fishermen. The IDR 2.69 trillion budget allocated for the management and supply of oil and gas was cut by IDR 156.38 billion to IDR 2.54 trillion.

    The reduction came from the city gas network construction ceiling of 15,500 household connections from 69,200 house connections to 53,700 house connections and the cutting of 4,400 converter kit units for fishermen from 28,400 units to 4,400 units. Another cut comes from the Coal Gasification Power Plant project with a capacity of 3 MW in South Kalimantan, valued at IDR 49.7 billion.

    ESDM Minister Ignasius Jonan said the government would make adjustments so that they would not have a major influence on a number of programs that had been planned.

"We are adjusting. The Ministry of Energy and Mineral Resources tries to cut it as much as possible not to interfere with the development target for 2017, especially in the ESDM sector.

Bisnis Indonesia, Page-30, Friday, Oct 21, 2016

PGN Owns and Operates 78% of Gas Pipes in Indonesia

    PT Perusahaan Gas Negara (Persero) Tbk (PGN) continues to build its natural gas pipeline infrastructure. Currently, the length of natural gas pipelines owned and operated by PGN reaches more than 7,200 kilometers (km). This amount is equivalent to 78 percent of the downstream gas pipelines throughout Indonesia.

    PGN's Corporate Secretary, Heri Yusup, said that to date, the total length of pipelines built and operated by PGN has reached more than 7,200 km. This number is an increase compared to the total length of pipe at the end of 2014 which reached 6,161 km.

"As a National Gas Company, PGN will continue to develop natural gas infrastructure to expand the use of natural gas for the community," said Heri.

    Starting this year, until 2019 PGN will add more than 1,680 km of natural gas pipeline infrastructure. The pipeline project is spread across various regions, including the Duri-Dumai open access transmission pipeline project, the Batam (Nagoya) WNTS-Pemping distribution pipe, and natural gas distribution pipelines in existing areas and other new areas.

"We have been doing pioneering by opening new areas that have not been touched by natural gas so that more areas can enjoy the benefits of energy from natural gas," said Heri.

    Heri said that PGN's natural gas infrastructure was built using its own funds.

"Everything was built with PGN's own investment without relying on the State Budget (APBN),".

    Heri Yusup added that the PGN gas pipeline in 2019 is targeted to reach 8,656 km. The addition of this gas infrastructure can increase the ability to utilize natural gas by as much as 1,902 million cubic feet per day (MMSCFD). In 2015, PGN was able to distribute natural gas reaching 1,591 million cubic feet per day (MMSCFD).

"From the distribution of PGN's natural gas to customers, it creates savings for the nation of Rp. 88.03 trillion per year," said Heri.

    Until now, PGN has never stopped building natural gas infrastructure in various regions in Indonesia. The main objective is one, namely so that natural gas, especially domestically produced, is environmentally friendly, efficient and safe and can easily be enjoyed by the wider community.

"For example, this year alone PGN has completed the construction of a gas pipeline in Batam along 18.3 km, then in Pasuruan, East Java PGN has completed the construction of a 15 km gas pipeline on the Kejayan-Purwosari section. Then there is another 27 km Jetis-Ploso segment. km, another 30 km in Kalisogo-Waru, East Java, "Heri detailed. PGN is the only business entity that distributes natural gas to various customer segments.

    Starting from households, MSMEs, hospitals, malls, hotels, restaurants, industry, power plants to transportation. PGN's natural gas has been enjoyed by more than 116,600 household customers. In addition, 1,900 small businesses, malls, hotels, hospitals, restaurants, and restaurants, as well as 1,580 large-scale industries and power plants.

    PGN also continues to encourage efforts to diversify vehicle fuels from BBM to natural gas. Currently, PGN has operated 7 Gas Refueling Stations (SPBG), the 8 partner SPBGs, and the 5 MRU (Mobile SPBG). PGN Dear Ibu PGN is ready to add 110,000 household natural gas connections in the next 3 years. Currently, PGN's natural gas has been enjoyed by people from Sumatra to Papua.

"We have a PGN Sayang Ibu program, this program aims to increase the number of households using natural gas energy. From this year to 2019, we will add 110,000 household gas connections, ”said Heri.

    The additional 110,000 household gas connections were financed from PGN's own investment, without relying on funds from the government or the state budget.

"It is also the responsibility of PGN as a State-Owned Enterprise and National Gas Company in Indonesia, to spread the use of natural gas that is efficient, environmentally friendly, easy and safe," said Heri.

Koran Sindo, Page-11, Thursday, Oct 20, 2016

ESDM looks at the budget for the new oil and gas project

    Oil and gas contractors who will submit budgets for new oil and gas field projects cannot sleep soundly. The Ministry of Energy and Mineral Resources (ESDM) will examine in detail the budget and proposed work program. Understandably, at this time, the Ministry of Energy and Mineral Resources is making savings on the cost recovery of oil and gas contractors on new oil and gas projects.

    Deputy Minister of Energy and Mineral Resources (ESDM) Arcandra Tahar said that the efficiency of the cost of recovery will be imposed on the development plan or plan of development (POD) of the newly proposed oil and gas project.

the IDD Chevron

"The upcoming PoD-PoDs are for example the IDD Chevron, Masela Block, and East Natuna Block. We will see the size of the new ones and reduce the costs," said Arcandra.

The Masela Block

    According to him, the government will reduce the cost recovery from the POD that will be proposed by oil and gas contractors, namely in terms of capital expenditure (capex) and operational expenditure (opex).

"We can reduce cost recovery with capex and that is the component, so we will see," explained Arcandra.

    Meanwhile, the POD that has already occurred will not be recalculated. Arcandra said the government must also be able to maintain investor confidence. That is why the government will continue to respect existing contracts.

"It will not be changed, we will respect the existing one first, because it has been agreed upon, because the project has already started. How can I change it again? Unless there is an administrative error there,"

    Denie S. Tampubolon, Senior Vice President of Upstream Business Development at PT Pertamina, has not been able to comment on the efficiency of cost recovery for the East Natuna project. The East Natuna project value reaches US $ 24 billion.

    Inpex Corp's Senior Manager Communication and Relations Usman Slamet and Chevron's Corporate Communication Manager, Prasasti Asandhimitra, have not yet responded to the confirmation that there is a need to change capital expenditures in the Masela and Chevron IDD projects if later submitted. 

    Currently, Inpex has not submitted a proposal to revise the Masela project, but the estimated investment is US $ 15 billion, while the government has not approved the Chevron project with an investment of up to US $ 7 billion.

    Fahmi Radhi, an Energy Observer from Gajah Mada University, suspects that so far, cost recovery has been the target of rent-seeking through mark-ups and other modes, namely increasing the purchase price of drills, changing drill bits, which can still be used. Then, another mode is to include various expenses that are not supposed to be a cost recovery component.

"The rent-seeking is carried out by companies that obtain sub contracts in the transportation of equipment needed for drilling,".

    The government can start thinking about changing the production sharing contract (KPS) scheme to reduce the total cost recovery to a ratio of 60:40, by reducing the cost recovery borne by the government by up to 50%.

Kontan, Page-14, Thursday, Oct 20, 2016

Hundreds of Oil and Gas Contracts Received Special Treatment

    The government guarantees that oil and gas Cooperation Contract Contractors (KKKS) are free from levies and taxes (assume and discharge) during their business activities in Indonesia. This government plan will be included in the revision of Government Regulation Number 79 of 2010 concerning Refundable Operating Costs.

"There has been an agreement with the Deputy Minister of Finance to apply the assume and discharge principle," said Teguh Pamudji, Secretary General of the Ministry of Energy and Mineral Resources.

    However, not all contractors will receive this special treatment. Only contractors who signed a cooperation contract prior to the regime of Law Number 22 Year 2001 regarding Oil and Gas will receive this privilege.

    The principle of assume and discharge requires the contractor to obtain certainty for the results of oil and natural gas without deducting levies and taxes. Fiscal provisions also apply nail down or are not affected by policies issued by the government.

    Teguh said that currently there are 288 oil and gas cooperation contracts. Of that total, five contracts were signed after Government Regulation No. 79/2010 was enacted. The result is that only 283 companies will get the assume and discharge principle. 

    Meanwhile, the five companies that signed contracts after the Government Regulation on Operating Costs did not assume and discharge. In exchange, the government will provide a number of incentives, such as tax exemptions.

    The ministry also proposes more various revenue-sharing options, such as gross splits and sliding scales. The goal is to make the contract more flexible to the economy in the field.

"The language is not assume and discharge, but tax incentives. The economy is almost the same, "said Teguh.

    Regarding cost recovery, Teguh said, the government must be flexible. Because, if the rules are made too rigid, the discovery of new reserves will be hampered.

"The contractor is worried that the costs will not be reimbursed".

Luhut Binsar Pandjaitan

    Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan said the draft revision of Government Regulation Number 79 Year 20 10 had been submitted to the Coordinating Minister for the Economy for signature. Luhut said the revision stated that the Ministry of Energy would grant the authority to provide incentives to oil and gas investors. 

    Previously this authority was in the hands of the Ministry of Finance. In the revision of no tax in the exploration period, fiscal incentives can be provided for the exploitation period with the project economy. According to Luhut, in addition to fiscal incentives, the Minister of Energy can provide non-fiscal incentives.

Energy and Mineral Resources (ESDM)

Minister of Energy and Mineral Resources (ESDM) Ignasius Jonan said he would continue the plan of the Coordinating Minister for Maritime Affairs Luhut Binsar Pandjaitan to reduce cost recovery. Director of the Indonesia Petroleum Association Marjolijn Wajong complained about the fiscal obligations that have been implemented by the government, such as taxes and levies.

Koran Tempo, Page-14, Wednesday, Oct 19, 2016

National Natural Gas Transmission Pipeline Achieved only 20% of the Target

    The national natural gas transmission pipeline only reaches 2,625 or 20% of the target. PGN Corporate Secretary Heri Yusup said the lack of gas infrastructure has hampered allocations. As a result, only 52% of the gas produced is consumed domestically, while the rest is still exported to increase foreign exchange.

    PGN Corporate Secretary Heri Yusup admitted that currently domestic gas demand is still very low, so producers have opted to export. Moreover, gas is not economical if it is stored for too long, so the gas that has been produced must be distributed as soon as possible. Heri said that if you want to achieve the maximum utilization rate of natural gas, no later than 2024, an additional 15,000 km of gas transmission pipelines and 14 liquidication projects must be built.

    Apart from infrastructure, the target market and the exact amount of demand must also be considered. Currently, the total natural gas pipeline that has been built has reached 13,500 km. About 78% of the existing gas pipelines were built by PGN and the rest are owned by a subsidiary of PT Pertamina, PT Pertagas and 63 units of traders. 

    According to him, the last gas infrastructure to be built is the 1,200 km South Sumatra-West Java (SSWJ) pipeline. Meanwhile, in the 2016-2019 period, PGN will add a natural gas pipeline infrastructure of 1,680 km. The pipelines to be added are the Duri-Dumai-Medan open access transmission, Muara Bekasi-Semarang, the Batam WNTS-Pemping distribution pipe, and several other areas.

    In 2019, the length of PGN's gas pipeline was 8,656 km and natural gas that could be channeled reached 1,902 mmscfd. Heri estimates that by doing so the national savings will reach IDR 88.03 trillion per year. This year PGN has also completed the construction of a gas pipeline in Batam along 18.3 km, Kejayan-Purwosari along 15 km, Jetis-Ploso along 27 km, and Kalisogo-Waru, East Java along 30 km. 

    PGN Corporate Secretary Heri Yusup said the lack of gas infrastructure has hampered allocations. As a result, only 52% of the gas produced is consumed domestically, while the rest is still exported to increase foreign exchange.

    Apart from infrastructure, the target market and the exact amount of demand must also be considered. Currently, the total natural gas pipeline that has been built has reached 13,500 km. About 78% of the existing gas pipelines were built by PGN and the rest are owned by a subsidiary of PT Pertamina, PT Pertagas and 63 units of traders. According to him, the last gas infrastructure to be built is the 1,200 km South Sumatra-West Java (SSWJ) pipeline.

Investor Daily, Page-9, Wednesday, Oct 19, 2016