Frontier development in Indonesia

What has been Ophir’s experience so far working on frontier exploration developments onshore in Indonesia?
We believe that one of our strengths is in exploration, creating value by discovering commercial resources. As one of the most active companies exploring in Indonesia, we have two offshore deepwater blocks in Eastern Indonesia, where we just completed a 3,400-square-kilometre 3D-seismic survey in October last year. The processing was also completed recently. It is our vision to be a sustainable explorer by creating additional values to the operated assets in Indonesia as well as the region, and to keep looking for prospects that offer the best risk-adjusted potential returns.
Doing frontier exploration is very challenging in terms of the level of complexity that we encounter, which makes it important to share the risk with like-minded partner. We hold a 60% interest in Aru while Statoil hold the rest, and we have 49.9% in West Papua IV. The rest of the shares are held by Statoil and Tately.

You are producing 30% of Ophir’s total oil production. What are the next steps for your operations in Indonesia?
Well, we are still behind our operations in Thailand. They started production earlier than in Indonesia, and now they are moving onto the next phase increasing their production and revenue. In Indonesia, we received our POP [put on production] approval from SKK Migas in 2016 for the additional 7 billion Btu of gas per day from West Kerendan field in Bangkanai block, which is open for buyers. At the moment, we have started discussions with PLN for the additional gas on top of the current 20 billion Btu per day delivered to the Bangkanai Power Plant. We also have received interest from some new potential buyers, but at the moment our priority is to supply it to PLN.
It is recognised that the challenge in the operating environment is the infrastructure. Our gas processing facilities are near a PLN power plant, and both are located in the remote area of North Barito. The most fundamental infrastructure needed for further development is definitely a proper access road, and all stakeholders are aware of this. Currently the electricity generated by the 155-MW power plant through the Ophir-PLN partnership is for Interconnected Central-South Kalimantan domestic use.
It is just west of the existing field, which is West Kerendan I. We are informed that PLN is going to build a second power plant, which we hope to supply. In terms of timing, this development matches with our production targets in 2020.

Are you satisfied with the price PLN is paying?
At the moment, the government has not determined the Kerendan price yet. We hope that it can be decided soon. In terms of the ideal price, we respect the government’s intentions to supply cheaper gas to the end user. At the same time, we hope the government also pays attention to the risk that being in a marginal and frontier area implies. If our field is located next to infrastructure, it is a different story. But when the field is in the middle of nowhere and the logistics are difficult, the cost for development and ultimately delivering the gas are different.

What should Indonesia do to attract companies that will explore in these areas?
For the greenfield projects, the Ministry of Energy and Mineral Resources sees the importance of additional data. That will help operators, contractors and investors. If there is some data around the area that an investor can evaluate, that would be helpful. It is not that easy. It is not like in some developed countries. It is important to have more data available and with easy access. When everything is clear and investors are welcome, then they are happy to invest. In addition, developing infrastructure and ease of doing business are fundamental if the government wants more investors to come to these areas. We recognise the government is working hard on these issues.

Do you see opportunities in these new bidding rounds?
Indonesia is still very interesting. Now, we are focusing on our existing operations, exploration, and development. Nevertheless, Ophir will keep looking for prospects that offer the best risk-adjusted potential returns to create value, especially if the operating environment and world oil price are improving.

How attractive is the tax side of the gross split?
Oil and gas investment is long term. We would like to have clear fiscal terms and regulations before we decide whether to invest. In terms of taxation and exploration on contractor risk, we hope that the taxation scheme will consider that and support a longer period of recovery for the investment made in exploration. Hopefully, this will be more than five years. We have some examples in some exploration acreages. With cost recovery, even the cost pool is carried over until almost the end of the project. With the gross split, it should at least be the same. For exploration blocks, gross split gives more risk to the operator because of the exploration costs. When it comes to production, if there is any, and if the cost pool is recovered, you have given a lot to the government. I hope and believe the government will pay off a bigger percentage of production. At the moment all our blocks are under cost recovery.

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