Indonesian Unconventional Resources Update

Chris Newton December 2012

Indonesia’s growing oil and gas supply – demand gap.

2

5,000

2005 2000

4,000

2010 2020 2015

3,000

2025

Natuna D Alpha

Undeveloped

2,000

Under Development 1,000

Producing 0

Mboe/d 6,000

Low-Case

Mid-case

High-case

2.6 Mmboe/d gap to be filled by EOR Conventional exploration Unconventionals Imports

Source: BCG analysis & Indonesian Petroleum Association

Oil & Gas Demand

Note: Low case equivalent to MIGAS efficiency case

Government policy and regulations have been actively promoting investment in CBM and shale is the next wave

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Year Milestone 2006 GR 33 / 2006 - First CBM PSC enabling regulation in

conjunction with GR 40 / 2006 on PSC award process

2006 First CBM Join Studies Agreements signed

2008 GR 26/2008 - Clarifies CBM rights and priorities First CBM PSC Signed

2011 Contractors start studies and positioning for shale gas and oil working areas.

2012 50th CBM PSC Signed

2012 GR05 / 2012 - Procedures for award of non conventional oil and gas working areas

2012 First Shale Gas JSA’s signed

Nov 2012 BPMIGAS Dissolution

Nov 2012 Constitutional Court rules BPMigas illegal

2013 First shale gas / oil PSC signed?

GR05 / 2012 – Key terms

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Non Conventional – Defined as Exploitation of low permeability reservoirs by using technology such as fracking eg :

• Shale Oil and Gas • Tight Gas Sand • CBM • Methane Hydrates

• Regular Tender or Direct Offer Processes Apply

• Direct Offer has right to match • All areas of Indonesia are open for exploitation

• Joint Study Area <5,000 Km2 onshore leading to a cooperation contract <3,000 Km2

• Existing Contractors have 60 day priority and must retain 51% in Joint Study and JS consortium

must retain 51% in subsequent PSC

• Conventional oil and gas has priority over overlapping CBM PSC

• Registered and complying JS proposal has priority over PSC signed later.

Shale Gas Working Acreage Access

5 Source: Migas

64 Shale Gas Joint Study Proposals already submitted

6 Source: Migas

Majority awarded through the joint study and direct offer mechanism 7

54 CBM PSC’s have been signed to date

Source: Migas and Risco Energy

Local first mover companies such as Sugico and Ephindo along with Pertamina control first mover positions

8 Source: Migas and Risco Energy

Investors have committed to drill at least 420 wells

9 Source: Migas and Risco Energy

Local entrepreneurs such as Ephindo and Sugico pioneered CBM however the super majors have been very active recently.

2 Block

1 Block

4 Blocks 3 Blocks

Sumatra CBM PSC Locations Kalimantan CBM PSC Locations

Sumatra is connected to Java via pipeline and Kalimantan has material LNG spare capacity to link to domestic regasification terminals or internationals markets

Bontang LNG Plant

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5 Blocks

Ephindo Blocks in Red

Source: Ephindo Energy and Petroview

The industry in general is well behind on its minimum PSC drilling obligations

11 Source: Migas, Ephindo and Risco Energy

Why is drilling so far behind commitments?

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• Many blocks awarded to companies without the financial, technical or operational capability to implement work program commitments.

• Financially and operationally capable companies have in general executed work programs.

Financial and Operating Capability of Participants

• No fit for purpose CBM drilling rigs available • High cost of conventional rigs and additional coring services • Inadequate formation evaluation services

Availability of CBM Specific Equipment and Services

• Slow access to overlapping forestry areas • Pinjam Pakai process takes a min of 240 days • Multiple overlapping jurisdictions and approvals with poor integration • Poor inter ministerial cooperation and lack of support from regulator

Land Access and Overlapping Forestry

Issues

• Bureaucratic and restrictive procurement rules • PTK 007 should not apply to CBM • GR79 should be axed

Restrictive Procurement Processes

• Micromanagement does not enable contractors to move quickly • BPMigas needs a dedicated expert team that understands CBM and the differences between

CBM and conventional oil and gas • Need a one stop enabling service

Regulatory Micro Management and

Unfamiliarity with CBM

• No CBM experience or expertise in country • Complex procedures for bringing in experts CBM skills shortages

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High potential resources

Enabling fiscal & regulatory regime

Land access & operability

Open & extensive gas infrastructure

Growing gas demand

Strong deregulated gas price

HR & service sector capability

Limited competition from conventional

Summary of competitiveness

Deep Capital Markets

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Three basins hold 80% of Indonesia’s CBM potential

Indonesian CBM Resource Potential of 453 TCF

However only the South Sumatra and East Kalimantan basins, have adjacent infrastructure and market

Source: Advanced Resources International

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Sumatra, Kalimantan and West Papua hold the shale potential

Source: Badan Geologi KESDM

Indonesian Shale Gas Resource Potential of 574 TCF

There is now however a clear upward trend to the headline gas price in new upstream gas sales agreements

16 Source: Migas and Risco Energy

A supportive investment environment has been a key to attracting investment

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Eagle Ford and Barnett Shale Plays

Bakken Shale Plays

Haynesville Shale Play

Quality resources adjacent to infrastructure and markets

Well funded through exploration, appraisal and early development

Operating capability with CBM / Shale specific skills and technologies

Leverageable local relationships

Safe & efficient low cost operating model

Creative and aligned service sector model

Winning Company Characteristics

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Thank You