CBM & Geothermal Energy in Indonesia: Interview with Pertamina

Export | Joint Ventures

Mr Mochamad Harun, VP Corporate Communications

gbg	Indonesia’s oil production has been in decline at the rate of approximately 12% every year. Pertamina has set the target of 474,000 BOEPD in 2011 and 1 million BOEPD by 2015, what strategies are in place to achieve these targets?
Mr Mochamad Harun	Our strategy in upstream is divided into organic and inorganic expansion. In the organic, we are focused on employing enhanced oil recovery activities to increase efficiency and production from existing fields and reactivating idle fields. In the inorganic, our strategy is to continue to pursue strategic acquisition, joint ventures and investments that will expand our oil, gas and geothermal businesses.
gbg	The company already operates several overseas oil and gas blocks in partnership with national energy companies. What are your criteria and objectives in terms of further international acquisitions and partnerships?
Mr Mochamad Harun	We must acknowledge that it is difficult for a single country to guarantee its energy security in the globalized world of today. Even China and India, two major developing countries in the world, have been seeking to cooperate in the energy sector to secure common benefits, in order to maintain their rapid economic development and rise in international status. We are open to partner with any company as long as we can work in a good cooperation and foster a mutually beneficial business partnership. The other aspect that we consider is if we can execute consistent technology transfers and a competitive working culture to gain competence and skills to develop a strong business.
gbg	With the phasing out of subsidized fuel and the implementation of Pertamax nationwide, the company has previously estimated the need for 2.5 billion USD in investment for refineries and storage facilities. How are these funds going to be raised and what are the opportunities for international investors?
Mr Mochamad Harun	Our business strategy is to be aggressive in upstream and profitable in downstream. To implement the strategy, we plan to raise 80% of the needed investment from external funding and 20% from internal. External funding can be corporate loans, bonds or project financing. From the funds raised, 75% will be spent for upstream projects and 25% for downstream projects. Recently in May 2011, Pertamina issued its first global bond in the amount of 1 billion USD. Pertamina global bond was issued with a coupon of 5.25%, yield at 5.5% and at a 10 year maturity. The bond was rated BB+, outlook positive from Fitch Ratings and Moody's, also rated Ba1 outlook stable from Standard's & Poor's; similar with that of Indonesia’s sovereign rating. In its offering, the order book exceeded 7 billion USD (oversubscribed by 7 fold). For us, it is an indicator of the high level of confidence of international investors in Pertamina, the Indonesia National Oil and Gas Company, and a positive signal for Indonesia’s investment climate.
gbg	Coal bed methane represents a welcome addition to diversifying Indonesia’s energy mix to reduce the country’s reliance on oil from 55% to 20% by 2025. What are Pertamina’s operations and future plans within this area?
Mr Mochamad Harun	Coal Bed Methane is a relatively new type of energy compared to geothermal. Pertamina’s subsidiary, PT Pertamina Hulu Energy currently manages four CBM blocks in Indonesia, i.e. Sangatta 1 and Sangatta 2 in Kalimantan Timur, Tanjung Enim and Muara Enim in Sumatera Selatan. PT Pertamina Hulu Energy is targeted to produce CBM of up to 200-300 MMSCFD. However, CBM development is far more complicated than oil, especially due to the dewatering process which poses serious threats to the environment. This unfavourable condition needs to be seriously addressed by authorities in order to accelerate CBM production. There are several interrelated issues that need to be resolved, including legal aspects, business aspects, as well as the social aspects. We need more government attention to ensure that CBM development will proceed in the right direction.
gbg	In light of the recent announcement on the Power Purchase Agreement for geothermal energy by PLN, what are the priorities for Pertamina Geothermal’s existing operations as well as future explorations?
Mr Mochamad Harun	Pertamina’s commitment to alternative energy is shown by the establishment of a dedicated subsidiary concerned with geothermal. Pertamina Geothermal Energy is the vehicle to develop 15 working areas across the country, including Sibayak, Sungai Penuh, Lumut Balai, Ulubelu, Hululais, Kotamobagu, Lahendong, Kamojang, Gunung Salak (with Chevron), Derajat (with Chevron), Wayang Windu (with Magma Nusantara Limited), Bedugul (with Bali Energy Limited), Sarulla (with Sarulla consortium), Dieng (joint venture with PT Geo Dipa), Patuha (joint venture with PT Geo Dipa). Pertamina Geothermal Energy is targeted to manage 1,970 MW geothermal potential and produce 1,340 MW electricity.
gbg	With President Yudhoyono’s targets of cutting Indonesia’s greenhouse gas emissions by 26% by 2020, how is Pertamina contributing to these ambitious goals?
Mr Mochamad Harun	At Pertamina, we are always attempting to use more efficient and environment friendly technologies, for example, we are in the process of investing in direct current electric drills to replace the existing, high energy consumption mechanical drills. We support various policies and programs which have been implemented or are to be developed by the Government of Indonesia. For example, using LPG for households, CNG and LPG for transportation, coal and gas for electricity power and increasing the use of new and renewable low pollution energy sources (i.e. non-fuel energy such as solar energy, micro hydro, geothermal and bio-fuel). By developing CBM, geothermal and other energy resources, we are supporting Indonesia’s national energy policy which focuses on diversification to alternative energy sources. This is to meet the 2025 targeted energy mix of coal (33%), gas and CBM (30%), oil (20%), and renewable energy (17%) including geothermal (5%), bio fuel (5%), coal liquefaction (2%), as well as others (biomass, nuclear, hydro solar, wind).