Introduction

In early 2016, oil price has fallen to its lowest level (30.32 US$/bbl) over the last 12 years. Since then,
petroleum exploration and exploitation activities are decreasing worldwide due to high production
cost and low oil prices. The oil and gas company must make extra cost saving and there were two
solutions to avoid bankruptcy and to keep the projects economically acceptable. First, internal
changes, such as reducing employee, not increasing salary, etc. Second, external change, such as
proposing changes of terms and conditions in existing fiscal regime to local government. In
Production Sharing Contract (PSC) fiscal regime like Indonesia, some changes that can be proposed
are depreciation acceleration, Incentive (Investment Credit and Interest Cost recovery), DMO Holiday
and share of percentage of First Tranche Petroleum (FTP) or change of Split Ratio.

Based on Presidential Regulation Number 22 of 2001 and Number 9 of 2013, the Government of the
Republic of Indonesia formed an institution called Special Task Force for Upstream Oil and Gas
Business Activities (SKK Migas). The Institution is assigned to manage upstream oil and gas business
activities under Cooperation Contract. One of the functions of SKK Migas is to give approval of
proposed Plan of Development (POD) documents based on technical and economic evaluations from
both SKK Migas and Contractor.

As of August 2017, there were 414 Projects or PODs approved by government of Indonesia and the
95 of them were PODs that located in offshore area. This paper will evaluate and analyze the
distribution of commercial reserves and the cost of development to help Contractors to find the
offshore area in Indonesia that has the highest commercial reserves and the lowest development cost.

Here, this paper will provide an insight about the development of oil and gas industry in Indonesia
during the falling of oil price and show a distribution map of petroleum development cost and
commercial reserves in Indonesia. Finally, this paper will help contractor minimize the risk of
exploration and create their portfolio and strategy to invest in oil and gas industry in Indonesia by
using these information.

Oil and Gas Industry in Indonesia

Field Development Plan in Indonesia used to be called Plan of Development (POD). Definition of
POD is a plan to develop one or more oil and gas field in an integrated way in order to produce the
hydrocarbon reserves optimally by considering the technical, economic and HSE aspects.

60 120
POD Oil Price (WTI), US$/BOE
50 100
Oil Price (WTI), US$/BOE

40 80
POD

30 60

20 40

10 20

0 -
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Figure 1. Plan of Development (POD) Approval vs Oil Prices (2003 – 2017)

Saint Petersburg 2018. Innovations in Geosciences — Time for Breakthrough

Saint Petersburg, Russia, 9-12 April 2018
Per August 2017, there were around 414 PODs approved by SKK Migas (including 95 PODs in
Offshore Area). Based on fig. 1, the fall of oil price had no significant impact to PODs proposed by
contractors. Conversely, the number of POD tend to increase although the oil price fell.

120,00

100,00

80,00
US$/BOE

60,00

40,00 Dev. Cost, US$/BOE

Oil Price (WTI), US$/BOE

20,00

-
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Figure 2. Oil Prices vs Development Cost of POD in Indonesia (2003 – 2017)

Based on statistical analysis, the petroleum development cost of POD are far below the oil prices (fig.
2). Although the developmen cost in 2015 began to rise and close to the oil prices, the number of
approved POD didn’t decrease. On the contrary, the number of POD increased and reached the
highest number since 2003 (fig. 1) and this might have been caused by the flexibility of Term and
Conditions of PSC in Indonesia (fig. 3) that helped the projects become economically acceptable.

Figure 3. Production Sharing Contract (PSC) Diagram

In Production Sharing Contract (PSC) fiscal regime like Indonesia, the Contractors can develope the
projects economically by proposing some changes in term and condition of Production Sharing
Contract, such as depreciation acceleration, Incentive (Investment Credit and Interest Cost recovery),
DMO Holiday and share of percentage of First Tranche Petroleum (FTP) or change of Split Ratio.

Saint Petersburg 2018. Innovations in Geosciences — Time for Breakthrough

Saint Petersburg, Russia, 9-12 April 2018
Mapping Development Cost and Commercial Reserves.

The 95 Offshore PODs that were approved by SKK Migas were scattered all over Indonesia. The
purpose of this paper is, to divide the geographical areas of Indonesia into 5 different areas (Natuna
Sea, West Java Sea , East Java Sea, East Kal. - Makassar Strait and Arafura Sea). Then, to collect the
data that related with commercial reserves and cost of development and then the commercial reserves
and cost of development are calculated and distributed to those aforementioned areas.

Figure 4. Methodology of Analysis and Mapping of Petroleum Development Cost

and Commercial Reserves

Here is the bubble map of development cost and commercial reserves of Offshore POD in Indonesia.

INDONESIA
North

Natuna
11.70
US$ per East Kal. - Makassar Strait
BOE
11.56
US$ per
BOE Arafura Sea
9.92
West Java Sea US$ per
BOE
20.80
US$ per BOE East Java Sea
11.73
US$ per
BOE

The offshore petroleum exploration activity should be done by contractors in eastern area of Indonesia, because these area
had the lowest development cost in Indonesia.

Figure 5. Bubble Map of Development Cost (US$/BBL)

INDONESIA
North

Natuna
219
MMBOE per East Kal. - Makassar Strait
Contract
Area 445 MMBOE
per Contract Arafura Sea
Area

West Java Sea 1,273 MMBOE

284 per Contract
MMBOE
per
East Java Sea Area
48
Contract MMBOE
Area per
Contract
Area

The offshore petroleum exploration activity should be done by contractors in eastern area of Indonesia, because these area
had the highest commercial reserves in Indonesia.

Figure 6. Bubble Map of Commercial Reserves per Contract Area

Saint Petersburg 2018. Innovations in Geosciences — Time for Breakthrough

Saint Petersburg, Russia, 9-12 April 2018
Based on Statistical analysis, we can conclude that Arafura Sea had the highest commercial reserves
(1,273.38 MMBOE per Contract Area) and lowest development cost (9.92 US$/BOE), meanwhile
East Java Sea had the lowest commercial reserves (48.68 MMBOE per Contract Area) and West Java
Sea had the highest development cost (20.08 US$/BOE) compared with other areas in Indonesia.

Conclusion

Based on the statistical analysis and mapping of Petroleum Development Cost and Commercial
Reserves of 95 Offshore Projects (POD), Arafura Sea had the highest commercial reserves (1,273.38
MMBOE per Contract Area) and lowest development cost (9.92 US$/BOE), meanwhile East Java Sea
had the lowest commercial reserves (48.68 MMBOE per Contract Area) and West Java Sea had the
highest development cost (20.08 US$/BOE) which remained lower than the current oil price (49.52
US$/BBL, average oil price January – July 2017). These analyses showed that the offshore area in
eastern of Indonesia had the lowest development cost and the highest commercial reserves, which
consequently mean that the offshore petroleum exploration activity should be done by contractors in
eastern area of Indonesia.

Finally, this paper is expected to provide contractors a quick look at oil and gas industry in Indonesia
especially at offshore area and guide them to choose which offshore area of Indonesia to explored and
also help them create their petroleum exploration strategy in Indonesia by considering on this
information.

References
1. Lubiantara, Benny [2012] Ekonomi Migas. PT. Gramedia Widiasarana Indonesia, 39 - 96.
2. Pudyantoro, Rinto [2013] A to Z Bisnis Hulu Migas. Petromindo, 125 - 201.
3. Azizurrofi, A., Asnidar, Arilda S.W & Firdaus, R.R. [2017]. Meeting The Strategy Of Petroleum
Exploration Based On Statistical Analysis Of Development Cost And Commercial Reserves In
Indonesia. EAGE: 79th EAGE Conference & Exhibition 2017.
4. ccop.or.th [2003] Plan of Development BPMIGAS (SKK Migas)
http://www.ccop.or.th/ppm/document/INWS2/INWS2DOC09_endrarto.pdf
5. skkmigas.go.id [2013] Profile. http://www.skkmigas.go.id/en/tentang-kami/profil
6. eia.gov [2017] Cushing, OK WTI Spot Price FOB (Dollars per Barrel).
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rwtc&f=a
7. prokum.esdm.go.id [2001] Oil and Gas Law number 22 of 2001.
http://prokum.esdm.go.id/uu/2001/uu-22-2001.pdf.
8. prokum.esdm.go.id [2013] Presidential Regulation number 9 of 2013 the Government of the
Republic of Indonesia. http://prokum.esdm.go.id/perpres/2013/Perpres%209%202013.pdf
9. SKK Migas, 2015, Oil & Gas Map of Indonesian Working Areas – Internal Report.
10. Plan of Development Monitoring Division of SKK Migas [2017] Plan of Development
Monitoring Reports for Exploitation Working Area in Indonesia – Internal Report.

Saint Petersburg 2018. Innovations in Geosciences — Time for Breakthrough

Saint Petersburg, Russia, 9-12 April 2018