You want to bring the industry into Indonesia. That is the plan. We want it to grow instead of importing all the goods.

Tumbur PARLINDUNGAN President Director SAKA ENERGI

PGN hunts for gas in deepwater Indonesia

January 26, 2018

Tumbur Parlindungan, the president-director of Saka Energi (SEI), about upstream activity in the market, Indonesia’s permitting process and areas with potential for operators in the US market. SEI is owned by state-owned Perusahaan Gas Negara (PGN), Indonesia's largest natural gas transportation and distribution company. SEI aims to produce natural gas for PGN through a portfolio of diverse assets, including traditional and nontraditional assets.

On upstream outlook: “There is still a lot of potential offshore Papua, East Kalimantan and North Java. We will be going into East Indonesia as well. We are trying to build the industry in Indonesia and provide gas.”

On permitting processes: “Bureaucracy is bureaucracy. You cannot change it. The only thing you can change is the timeline. If they have 100 permits, fine, but give me a timeline for it. Right now our permits have no timelines.”

On the US market: “[US President Donald] Trump’s decision to sign the Keystone Pipeline from Marcellus means going there would be cheaper than going to Eagle Ford or Bakken for oil. Everything is unconventional in the USA.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Tumbur Parlindungan below.

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What can be improved in order to boost E&P activities in Indonesia?
Bureaucracy is bureaucracy. You cannot change it. The only thing you can change is the timeline. If they have 100 permits, fine, but give me a timeline for it. Right now our permits have no timelines.
Why not just make it compliance-based instead of issuing permits? If you do not comply, you pay the penalty. I think that would be better for the government, because they would get more money than they do now with the permits. It would also be less hassle and work. That is what we are trying to talk to the government about. That is an easy way.

How efficient is the bidding round process in Indonesia?
In Indonesia, it takes at least six to 12 months plus one year to get a signature from the government. You can have the authorisation before, though, so you can announce it. Once you get the exploration concession, you have to get the activities approved, not by SKK Migas or ESDM, but by the environmental agencies, the local governments or property owners. That is one we cannot manage because it is a different animal, and they do not understand the oil and gas business. Sometimes it will take three or six months, but with the local government, you cannot predict how long it will take. In the 1990s, it was 10-15 years from exploration to production.
We had one discovery in Bangka, and we tried to take less than three or four years to first oil. That is what we are trying to achieve right now, to speed up the process, not against the regulations but to find loopholes in the regulations to be allowed to move faster.
We are not an NOC, even though we are a state-owned enterprise, so we do not receive any preference. Getting the approval from SKK Migas sometimes takes time. We follow the regulations, and we try to do everything in parallel. You start every permit at the same time. You start doing the environmental permit even if there is no discovery at the time. If there is a discovery, great. However, if there is no discovery, then you stop the process. It costs you a few things. When we do the economic analysis, the timeframe is more important than just how much we are spending now. Sometimes, we have our own bottlenecks as well that are economical.

What opportunities do you see in the market?
The subsurface opportunities are huge. That is what we are trying to explore, and that is the reason we have a few exploration blocks coming, not only the two that we currently have. At the end of this year, we will have maybe four or five because there is still a lot of potential offshore Papua, East Kalimantan and North Java. We will be going into East Indonesia as well. We are trying to build the industry in Indonesia and provide gas. That is the plan. Anytime there is a pipeline or IPP, that is the PGN holding objective. You want to bring the industry into Indonesia. That is the plan. We want it to grow instead of importing all the goods.

What is the crude price needed in order to break even in Indonesia, for offshore and onshore developments?
Without drilling, we can break even at USD 8-10 per barrel. With drilling, it’s within the range of USD 17-20. Even at USD 26, we still make money.
Our net profit margin is more than 20%. Then we are getting at least USD 25 [per barrel]. It is not that bad for us because we only have a staff of 300 people, including people in the field. We do not have people in the US because we can manage our affairs from here. That is the efficiency that we have. We can improve here.

What is Saka’s strategy in the USA?
In the USA, we have the Fasken block in Eagle Ford, in partnership with Swift Energy. It is around 8,300 acres [33.6 square kilometres]. We produce about 30,000 boe. We have a 50% interest there, and we have an option to acquire the whole company if we want to increase our 50% share. This is the way we understand the whole gas market in the world. This is how we learn the technology and send people to consult. That is why we expanded there.
If you go to Africa, for example, you have technology that you have to replicate. It is the same in Indonesia. Next year we will start expanding to get more assets in the USA. [US President Donald] Trump’s decision to sign the Keystone Pipeline from Marcellus means going there would be cheaper than going to Eagle Ford or Bakken for oil. Everything is unconventional in the USA.
We are also looking for an LNG plant that can bring gas to Indonesia right now. We are talking to a few of those plants.

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