INDONESIA

Pertamina, Indonesia's state-owned oil and gas company, oversees all oil and gas operations in Indonesia, from exploration through marketing. It was organized in 1968 by merging two existing state-owned oil and gas companies, PN Pertamin and PT Permina.

Pertamina is short for "Perusahaan Pertambangan Minyak dan Gas Bumi Negara."

A six-member board of directors headed by a president director manages Pertamina. Pertamina's president director is appointed by the president of Indonesia ;

Indonesia s constitution grants ownership of all in situ mineral resources to the government and, therefore, the government has been described as the "cornerstone" of Indonesia's petroleum industry.

Pertamina, Indonesia's largest industrial enterprise, has been given sole rights to explore, develop, produce, refine, and distribute oil and gas. It also engages in non-hydrocarbon-related activities such as geothermal energy, tourism, and telephone books.

In 1992, Indonesia issued regulations permitting 100% foreign ownership of projects valued in excess of $50 million. This may mean that some downstream projects envisioned as Pertamina projects may change to foreign ownership.

ORGANIZATION

Pertamina's board of directors is responsible to the board of commissioners chaired by Indonesia's Minister of Mines and Energy. The deputy chairman of the board of commissioners is Indonesia's minister of finance. The three board members include the head of the National Development Planning Board (Bappenas), Minister/State Secretary, and the State Minister for Research and Technology (Fig. 1).

The present board of commissioners began its 5-year term last Mar. 16. The new members include I.B. Sudjana, Minister of Mines and Energy, and Mar'ie Muhammad, Minister of Finance. Ginanjar Kartasasmita, the previous chairman of the board and former minister of mines and energy, now heads Bappenas and remains as a member of Pertamina's board of commissioners. The other two members, Moerdiono and B.J. Habibie, were reappointed to their previous cabinet posts and, therefore, remain on Pertamina's board of commissioners.

Faisal Abda'oe has been president director of Pertamina since 1988. Previously for 7 years, he served as Pertamina's finance director. Born in 1930, he has a technology degree from Gajah Mada University, in Yogyakarta, and a masters degree in economics from the University of Indonesia in Jakarta.

Two of the most recent appointments to Pertamina's board of directors are: G.J. Atihuta as director of processing and Judo Sumardjo as director of supply. Both previously served as junior directors.

Pertamina not only explores and produces oil and gas but has contracts with more than 100 domestic and foreign oil and gas firms. Head of the foreign contractors coordinating and management body (Bppka) is S. Zuhdi Pane.

RESOURCE BASE

In 1992, Indonesia produced an estimated 1.33 million bo/d, mostly through Pertamina's production sharing contracts with foreign companies (Fig. 2). Estimated 1992 exports were 0.8 million bo/d of both oil and condensate. The condensate is produced primarily at the Arun field with some coming from the gas fields in East Kalimantan. Exports go mostly to Japan.

Indonesia is also the world's largest exporter of liquefied natural gas (LNG), providing about 39% of the world's total supply (OGJ Jun 28, p. 24). Gas export revenues are expected to exceed oil export revenues in the next 10 years.

Oil and gas export revenue was $10.9 billion in 1991 and $10.7 billion in 1992. Forecasts for 1993 stand at $10.1 billion.

Although at this time a net exporter, Pertamina depends heavily on imports mainly because the heavy crudes it produces cannot be processed in local refineries. Pertamina has a refining capacity of about 865,000 bo/d in six refineries.

Demand in Indonesia is toward middle distillate products such as kerosine, light diesel oil and, to a lesser extent, gasoline.

This affects Indonesia's petroleum products because the refining of heavy Indonesian crudes produces a greater amount of heavier distillates such as fuel oils and low-sulfur waxy residue (LSWR) crude. These heavier fuels are mainly exported, while substantial quantities of middle distillate products are imported.

Pertamina imports about 150,000 b/d of light crude, with 110,000 b/d coming from the Middle East, 20,000 from Malaysia, and 20,000 b/d from Australia.

Proven reserves are estimated to be 5.8 billion bbl of oil and 64.4 tcf of gas (OGJ Dec. 28, 1992, p. 44). Estimates from Indonesia's Department of Mines and Energy indicate reserves, including probable, of 11 billion bbl of crude oil and 104 tcf of gas.

FOREIGN CONTRACTORS

On the upstream side of the industry, Pertamina is very dependent on foreign contractors to explore, develop, and produce both gas and oil.

The Oil Law of 1960 permitted foreign companies to establish themselves under contract of work agreements (COWS) with the two state-owned oil companies then in operation.

Until 1967, foreign oil companies operated exclusively under COW agreements, which stipulated that 60% of profits from an exploration group's production went to the state-owned company. During 1993, the last remaining COWs will be converted to production-sharing contracts (PSCs).

Since 1967, Pertamina and foreign companies have operated primarily under PSCS. Under these, a contractor finances all exploration, development, and production costs within a specified area. Pertamina oversees the operations.

Contractors retain a portion of the crude produced to recover investment and operating expenses. The remaining production is divided between Pertamina and the contractors.

PSCs generally are for 30 years but are canceled after 10 years if exploration is unsuccessful.

To stimulate investment in marginal areas with low-risk exploration, Pertamina in 1977 established 50/50 joint operating agreements (JOAs). During the first 3 years of exploration, the contractor must invest an amount equal to the money previously spent on exploration in the same area. Further exploration and production costs are divided equally between Pertamina and the contractor.

Under a JOA, Pertamina receives half of the net production and an entitlement based on the production-sharing ratio of 85:15 on the other half. Contractors are required to provide up to 25% of the crude as a domestic market obligation (DMO).

The JOA along with the TACs (technical assistance contracts), JOBs (joint operating bodies), and EOCS (enhanced oil contracts) are of primary interest to foreign independents and local Indonesian oil companies.

As of 1992, about 120 areas were covered by working agreements. These included 87 PSCS, 21 JOAS, 7 EORS, 3 TACS, and 2 COWS.

Pertamina and foreign companies' expenditures for exploration and development were $1.3 billion in 1990 and $2.3 billion in 1991. The 1993 estimate is $1.5 billion.

Pertamina signed 11 new exploration contracts in 1992 and expects 20 more to be signed in 1993.

Exploratory wells drilled under new and existing contracts numbered 131 in 1990, 162 in 1991, and 123 in 1992, with 207 projected for 1993.

TIMOR GAP

Signed by Indonesia and Australia in February 1991, the Timor Gap Oil Treaty governs management of oil and gas exploration and production in a 62,880 sq km zone of cooperation.

The zone is divided into three parts: Area A will be developed jointly by both countries and production will be shared on a 50/50 basis. Area B will be developed by Australia, and 10% gross resource rent tax will be paid to Indonesia. Area C will be developed by Indonesia, and Australia will receive 10% of the income tax collected by Indonesia from contractors.

By the end of 1991, Pertamina had signed 11 PSCs for petroleum exploration in Area A, involving a total investment of $362 million and slated to cover the drilling of 45 exploratory wells.

NEW INCENTIVES

Indonesia's domestic petroleum product sales has steadily grown. In 1987, sales averaged 455,000 b/d, increasing to 661,000 b/d in 1992. The three main products were gas oil, 254,000 b/d; kerosine, 147,000 b/d; and gasoline, 124,000 b/d.

Because Indonesia has the world's fourth highest population (1992 estimate of 186 million), the domestic energy consumption is expected to grow. One scenario is that Indonesia will become a net importer in the next decade.

To temper the effects of this possibility, Indonesia is attempting to increase oil exports while reducing the rate of growth of domestic consumption.

In September 1992, the Indonesian government presented the third package in 4 years for encouraging more exploration in less accessible regions.

The package for new and extended contracts increases the price of the domestic obligation oil and provides larger investment credits as well as increasing the contractor's share of the oil from fields producing from water depths greater than 1,500 m.

MARKET PRICE

Because of Indonesia's accessibility to its two largest export markets (Japan and the U.S.) and its low-sulfur content, Indonesian crude is quoted at a premium price over Middle Eastern crude.

Until 1988, a government selling price (GSP) dictated Indonesia's crude export prices. In 1989, a market-related, monthly pricing scheme was introduced, known as the Indonesian crude price (ICP).

The ICP is an average price of Minas crude for the previous 30 days plus or minus the difference between that price and the price in the previous year of four other competing crudes.

REFINING AND MARKETING

Nearly all refining in Indonesia is carried out by Pertamina in six refineries with a combined capacity of 865,000 b/d. Overall refinery output totaled 300 million bbl in 1992 up from 286 million in 1991.

Improvements and expansions are under way at several refineries. Also, a new export-oriented facility at Balongan, West Java, with a capacity of 120,000 b/d is slated for completion in 1994.

Through the construction of three or four new refineries, Indonesia hopes to boost capacity by 600,000 b/d in the last half of this decade.

Pertamina has started to license a number of gasoline filling stations to private operators and may even sell some stations.

NATURAL GAS

As with oil, foreign contractors produced most of Indonesia's natural gas. Gas production has more than doubled in the last 5 years from 1.7 tcf in 1987 to 2.5 tcf in 1991. In 1992, production was estimated to be 2.6 tcf, of which only 243.9 bcf was produced by Pertamina.

The two largest gas-producing areas are the Arun field in Sumatra and the Badak, Nilam, and adjacent fields in Kalimantan. Pertamina has set up two joint venture companies, PT Arun LNG Co. and PT Badak LNG Co., to liquefy the gas from these two areas.

As part of the oil gas incentive package introduced in September 1992, exploration incentives are equal between oil and gas projects. In addition, contractors are now allowed to retain a larger portion of new gas discoveries.

Exports of LNG, which began in 1977 at $80 million, reached $4 billion in 1992.

Indonesia has 11 natural gas liquefaction trains at Arun in Sumatra and Bontang in East Kalimantan. In late 1991, construction began on the 12th LNG train at the Bontang. The project, scheduled for completion in 1993, is expected to start delivery in early 1994. Three more LNG trains are scheduled, two at Bontang and one at Arun.

Pertamina is negotiating with Esso Indonesia Inc. for development of a large gas field in the Natuna Sea field; total cost has been reported to be about $20 billion.

Domestic demand for natural gas is expected to grow. Fertilizer, cement, and downstream petrochemical plants are the more significant consumers of gas.

To further facilitate Indonesia's domestic gas distribution, a new pipeline will link the Kangean block near Madura Island with a gas-fired combined cycle power plant under construction at Gresik near Surabaya in East Java.

PETROCHEMICALS

About 56 chemical plants are currently in operation, producing $4 billion worth of products annually, of which over $550 million are exported.

Facilities include plants with installed annual capacitor of 7 million tons of fertilizer, 1 million tons of adhesive resins, 330,000 tons of methanol, 270,000 tons of paraxylene, and 225,000 tons of purified terphthalic acid (PTA). Other products include synthetic resins, PVC polypropylene, polyvinyl chloride, polyester, and nylon fibers.

Two recent facilities are the $2 billion olefins complex at Cilagon, West Java, for producing ethylene, propylene, and related downstream products, and the $1.3 billion aromatics complex at Arun in North Sumatra. This facility will produce benzene, paraxylene, and fuels.