IKATAN AHLI

TEKNIK PERMINYAKAN
INDONESIA

Indonesian Oil & Gas Industry

The Challenges Ahead
Benny Lubiantara
(Dewan Pakar IATMI)

IATMI Luncheon Talk, 13 January 2016

Presentation Outline

Global Oil & Gas Industry Landscape

The Implications of Low Oil Prices
The Challenges of Indonesia Oil & Gas Industry
IATMI Perspectives

Presentation Outline
Global Oil & Gas Industry Landscape

The Implications of Low Oil Prices

The Challenges of Indonesia Oil & Gas Industry
IATMI Perspectives

Understanding Oil Prices

as per 12 January 2016

Factor Influence Crude Oil Prices

Source: Energi Information Administration (EIA)

US Oil & Gas Reserves

US Petroleum Production, 1950 - 2030

Source: Economic Report of the President to the Congress of United States (US), Feb 2015

Global Proven Reserves

OPEC vs. US Shale Oil

US shale oil proven serves have increased significantly,

but, OPEC still dominate in terms of global proven reserves

The Dynamics of Crude Oil Prices

Shale
Oil

Alaska,
North Sea,
Mexico &
Russia.

Asian
Financial
Crisis

Economi
c slow
down
OPEC cuts
target 4.2
mmbopd

9/11
attack
OPEC cuts
target 1.7
mmbopd

Demand Issue

Supply Issue

Roughly one-third of current oil production could be uneconomical

if prices stay around US$60 per barrel
Average of full-cycle costs less dividends and interest payments

Source: Energy Aspects from Bank of Canada - Monetary Policy Report, January 2015

Production Costs and Fiscal Breakeven Costs

Source: Deloitte, Oil Prices in Crisis, 2015

Breakeven Price or Shut-in Price ?

The break-even price is what investors consider when deciding whether to
invest in new producing capacity.

Shut-in price. This is the price where the operator cannot cover variable
costs and therefore stops producing from existing wells.
Source: Figure from OPEC Secretariat

Wood Mackenzies long-term crude price forecast

Oil Price Forecasting

Wood MacKenzie, LongTerm Outlook to 2030, 12 May 2011

Looking Ahead at Oil Prices

May 2015

Looking Ahead at Oil Prices

Fundamental Supply vs. Demand

Source: IEA, Oil Market Report, December 2015

Presentation Outline

Global Oil & Gas Industry Landscape

The Implications of Low Oil Prices

The Challenges of Indonesia Oil & Gas Industry

IATMI Perspectives

Expecting Decline in Cost Index

Source: IHS CERA

The Implications of Low Oil Price

Survival Mode
Safety is still the top priority
Efficiency
Projects
Revisited the economics at current low oil price environment
Postpone if below Minimum Attractive Rate of Return (MARR)
Renegotiate existing and new contracts with suppliers
Freeze new hiring
Optimize unnecessary/luxury costs
Layoff/downsizing initiatives

Crisis & Opportunity

Low upstream costs Time to Explore

More efficient business
Time to buy new (under valued) assets
Improve internal business process
Fit for purpose technology Forget nice to have
Take Ownership Forget third Parties

Oil Prices & Budget

-> 105 $/bbl
-> 60 $/bbl
-> 50 $/bbl

Sumber: SKK Migas

Oil Prices & Level of Activities

Oil Price Assumptions:

60 $/bbl 50 $/bbl

Sumber: SKK Migas

23

Oil Price Cycles & Fiscal Changes

UK (Concession, Increased S.C, 2006)

Algeria (PSC, WPT, 2006)
China (PSC, WPT, 2006)
US, Alaska (Concession, WPT, 2006)
Ecuador (PSC, WPT increased, 2007)
Venezuela (Concession, WPT, 2008)
PNG (Concession, Add. Profit Tax, 2008)
Canada, Alberta (Royalty increased, 2007)
Vietnam (PSC, Export rates increased, 2008)
Bolivia (Contract overhauled, 2005 2007)
Kazakhstan (Retroactive changes to PSC, 2008)

Presentation Outline

Global Oil & Gas Industry Landscape

The Implications of Low Oil Prices
The Challenges of Indonesia Oil & Gas Industry
IATMI Perspectives

Short Term Impacts

For Net Oil Importing
Countries

Oil Price
Drop

Economic
Growth

27

Medium to Long Term Impacts

For Net Oil Importing
Countries
Oil
Price
Drop

Oil
Consumption
Increase

Exploration &
Production
Decrease

Energy
Resilience

28

Tata Kelola Migas

BP Migas hanya melakukan

fungsi pengendalian dan
pengawasan atas pengelolaan
Migas, dan tidak melakukan
pengelolaan secara
langsung, (dan seterusnya)

Presentation Outline

Global Oil & Gas Industry Landscape

The Implications of Low Oil Prices
The Challenges of Indonesia Oil & Gas Industry

IATMI Perspectives

Oil Price Cycle and PE Skill Demand

Layoff & Downsizing Issue

IATMI strongly recommend that the KKKS should keep the PE talents/experts in their companies

to assist the possible technology innovation or fit for purpose technology application to help
KKKS survive in the current low oil price environment. In addition to that, since the PE is very
specific expertise, IATMI believes that maintaining that assets will help the sustainability of
Indonesian oil and gas industry.

PE Fresh Graduates
IATMI will continue its support for young PEs graduates who eager to improve their skills (not

limited to the technical skills) and to develop networking in all stakeholders in oil and gas
industry.

Treat the Cause not The Symptoms

Exploration & Production Issues
Lambatnya Proses
Pengadaan/Persetujuan

Kemampuan
Finansial

Rumitnya Perizinan
Akuisisi Lahan
Tumpang Tindih
Aturan Pusat & Daerah

Ketakutan Mengambil
Keputusan (Kriminalisasi
Kebijakan)

In the view of IATMI, the cause of the problems is the lack of synergy among stakeholders, The answer is
actually simple: Synergy Synergy Synergy but we know that the implementation is not that easy,
continues effort is a must.
The need of synergy increase in the current low oil price environment, all shareholders are reviewing their
business process. In this regards, IATMI suggest that government should simplify their business process in
order to accelerate the time needed to get approval, which may lower the costs of doing business.
32

New Oil And Gas Law

Policy

?
Current low oil price environment will increase the uncertainty of future oil and gas
industry, oil and gas companies reduce their investment around the world, at the
same time, many countries are likely revisit their fiscal policies to anticipate the
change in the global oil and gas industry landscape.

In this regard, in order to minimize the uncertainty among the oil and gas
stakeholders, IATMI strongly recommend that the Parliament should accelerate
the process & the approval of new oil and gas law.

Shifting Paradigm
Different Strategy for Different Era
Maximize Fiscal Revenue/
Highest Government Take

Maximize Multiplier Effects/

Energy Resilience

34

Thank You

Benny Lubiantara is now working for SKK Migas as a Head of Division, Work Program and
Budget Management since February 2013. Previously he worked as a Petroleum Fiscal Policy
Analyst, Energy Studies Department, OPEC Secretariat in Vienna, Austria (January 2006 to
February 2013). His main responsibilities were to analyze the economics and commercial aspects of
global upstream petroleum contracts. He started his professional career in the oil and gas industry
in 1990 as a Petroleum Engineer in Maxus (now CNOOC). In 2000, he worked for Unocal
Indonesia (Now Chevron) and moved to BPMIGAS (Indonesian Government Agency for Upstream
Oil and Gas Activities) in 2004. He is the author of two books (Both in Bahasa Indonesia), The
Economic Aspect of Oil and Gas Contracts (2012) and The Dynamics of Oil and Gas Industry
(2014). He was also one of the main contributors of OPEC World Oil Outlook (2009,
2010,2011,2012)