indonesian oil and gas survey-2014 pwc

8/11/2019 Indonesian Oil and Gas Survey-2014 PwC

1/59

Opportunities, Risks andRewards a balancing actAn investor survey of the Indonesian oil andgas industry

May 2014

www.pwc.com/id


2/59


3/59

Contents

1 Introduction 3

2 Executive Summary 4

3 An overview of the oil and gas industry in Indonesia 6

4 Survey approach 12

5 Supply and demand for oil and gas 14

6 Employment 20

7 Capital expenditure 24

8 Challenges facing the industry 28

9 Competitiveness 34

10Other challenges 40

11 About PwC 50

12 Acknowledgements 53

13 Glossary 54


4/59


5/59

Opportunities, Risks and Rewards a balancing act.

Indonesia has a long history in the oil and gas industry with a diversity ofgeological basins which continue to offer sizeable oil and gas potential.However, Indonesias crude oil production has continued to decline overthe last decade due to the natural maturing of producing oil elds, aslower reserve replacement rate and arguably, insufcient exploration andinvestment. The Government of Indonesia (GoI) continues to put effortinto increasing Indonesias oil production and attracting investment fromnew and existing players, but in practice this has proven to be challenging.Our survey respondents were however more optimistic about the prospectsfor further gas nds in Indonesia. Some respondents took the time in their

written comments to point out the need for investment in appropriate gasinfrastructure to complement the further development of gas.

This is the sixth edition of our survey of the Indonesian oil and gasindustry, and where applicable we have analyzed the collective trends insurvey participants responses using the current and prior reports. Thesurvey responses come from 106 respondents from 90 different companiescurrently operating in the Indonesian oil and gas sector and thereforecan be used to draw credible conclusions about the issues preventing theindustry from reaching its full potential. The survey shows that there havebeen improvements in some areas, but also suggests that new regulations,

contract sanctity, uncertainty over cost recovery and interference fromother government agencies continue to stie investment.

The level of interest in this 2014 survey, and the effort taken with detailedwritten comments, demonstrates a huge passion amongst participants tosee this industry develop and further underpin Indonesia's energy future.

We trust that this report will prove informative and would like to thank allthe individuals who took the time to participate.

Introduction1

3Opportunities, Risks and Rewards


6/59

PwC

Executive Summary2

Supply and demand for oil andgas

Not surprisingly, survey participantsbelieve that the demand for oil and gas

will continue to grow, both globallyand in Indonesia. Similar to our 2012and 2010 survey results, the demandfor gas is expected to increase at agreater rate than the demand for oil.

Survey respondents were dividedequally as to whether or not thereare still signicant oil reserves to bediscovered in Indonesia. In regard togas, they were more optimistic with66% of respondents expecting furthersignicant gas elds. Expectations arehigh for discoveries in Eastern Indonesia(Papua, Maluku, etc.). Most respondentssuggested their companies wouldcontinue to explore for both gas and oil.

Almost three-quarters of surveyrespondents (72.5%) indicated that theprice of crude oil would remain in the

US$101-120 per barrel range for 2014, butonly 50% believe it would stay in that rangeby 2016. While 14% of respondents said theoil price would be above US$120 in 2016,36% forecast it would fall to US$100 orbelow.

Employment

In line with the continued increase inglobal demand for oil and gas, the demandfor employees working in the oil and gasindustry in Indonesia is likely to increaseover the coming years. Expatriate numbersare not expected to increase, despitean apparent need for deepwater andunconventional expertise, largely due tothe new expatriate utilisation regulationsadding some conditions on the employmentof foreign workers for the upstream andservices sectors. As in the 2012 surveyresults, a large portion of the survey

participants expect difculties in attractingsufcient (skilled) human resources. Oneof the reasons behind this is the fact that a

Photo source: PT Chevron Pacic Indonesia


7/59


Executive Summary

We noted that survey participantswere slightly optimistic on theanticipated developments on anumber of challenges over thelonger term as they expect someimprovements within the comingve years.

In written comments to the

survey a number of respondentsagged their concerns over theneed to resolve the status of thepending revision of the Oil andGas Law. Some also expressedor implied frustration with theperceived lack of consistency orcoordination between the variousGoI Ministries.

Competitiveness

From this survey, the ve mostcompetitive features of theIndonesian oil and gas industryare as follows:

1) Political stability2) Trained workforce3) Ease of foreign ownership4) Environmental regulation5) Geological opportunities

Critically we note that foreign

ownership (read as access toacreage and being open forbusiness) remains a competitiveand positive feature of theIndonesian upstream sector.We note also that geologicalprospectivity, although stillregarded as good, is no longerregarded as the most competitivefeature of the Indonesianupstream sector.

Other challenges

Survey respondents weredivided as to whether the 2014elections would have signicantramications for the sector,but were in agreement thatthe upstream procurementregulations were and would

continue to have a negativeimpact on their business.

There was overwhelming supportfrom respondents for the GoI toprovide incentives to support thedevelopment of unconventionalgas (90% of recipients), butserious concern as to whetherIndonesia had the knowledge andexpertise to extract and produceunconventional gas.

On a concluding note, despitemost respondents indicating thatthey were not satised with thereturns of their investment, themajority (consistent with ourpast three surveys) had neverconsidered leaving Indonesia.

signicant proportion of skilledlocal employees seek employmentabroad (mostly in the MiddleEast) in search of highercompensation.

Capital Expenditure

The participants general view

seems to be that capital spendingwill stay the same or even increaseover the coming ve years. This ismore or less consistent with the2012 survey results and consistent

with the increased lifting costs formature elds and development ofdeepwater assets. Disappointingly,48% of respondents suggestedtheir appetite for furtherinvestment in Indonesia wasdeclining.

Challenges facing theindustry

Our survey indicated that the vemost critical challenges facing theindustry are as follows:

1. Interference from othergovernment agencies, suchas the tax authorities

2. Contract sanctity3. Confusion as the roles ofthe central, provincial &regional government

4. New regulations5. Uncertainty over cost

recovery and SKK Migas/BPKP audit ndings

The challenges highlighted in boldabove were also included in thetop ve challenges in our 2010

and 2012 surveys.


8/59

PwC

An overview of

the oil and gas industryin Indonesia

3

Introduction

The landscape of the oil and gasindustry, both in Indonesia and globally,has experienced dramatic changes inrecent years. The industry experienceda signicant resurgence in investmentcoinciding with the run up in crude oil

prices which peaked at approximatelyUS$145 per barrel in mid 2008. This

was then tempered with the onset of theglobal nancial crisis and ensuing globalrecession which gained momentum inthe latter half of 2008. From its peakin mid-2008, the oil price collapsedby more than 70% and ended 2008 atapproximately US$40 per barrel. Withmarket condence returning crudeprices recovered somewhat in 2009 toapproximately US$75 per barrel. Prices

have increased to average (on an annualbasis) approximately US$94-98 a barrel(WTI) in the period from 2011 to 2013.

Despite ongoing regulatory changes,investment in the oil and gas industryin Indonesia reached US$16.1 billion in2012 and US$19.3 billion in 2013 andcontributed around 12% of total staterevenue. In 2012 there were 25 new

oil and gas contracts entered into alongwith a further 14 in 2013. Most recently,in February 2014, seven new contracts

were signed.

Global Context

Indonesia has been active in the oil andgas sector for nearly 130 years after itsrst oil discovery in North Sumatra in1885, and continues to be a signicantplayer in the international oil and gas

industry.

Photo source: Talisman (Asia) Ltd.


9/59

7

An overview of the oil and gas industry in Indonesia

Opportunities, Risks and Rewards

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

1800

1600

1400

1200

1000

800

600

400

200

0

Indonesia holds proven oil reservesof 3.6 billion barrels and ranks 20thamong world oil producers, accountingfor approximately 1.1% of world oilproduction. Declining oil productionand increased consumption resulted inIndonesia becoming a net oil importerin late 2004. This factor, along with

high oil prices in 2004-2008, led theGovernment to substantially scale backthe domestic fuel subsidy in 2008 andto decide to temporarily withdraw from

the Organisation of PetroleumExporting Countries (OPEC) an organisation representingapproximately 45% of world oilproduction. As the only Asianmember of OPEC since 1962, theGovernment has indicated it willconsider rejoining OPEC if the

countrys oil production can beincreased and it can become a netexporter again.

Indonesia Oil Production and Consumption

Source for 2000 - 2012: BP Statistical Review of World EnergySource 2013: Energy Information Administration, US Government

Production Consumption

Thousandb

a

rrelsdaily

Signicant events in the history of Indonesias Oil and Gas Sector

1885

First commercial oildiscovery inNorth Sumatra

1921

The biggestdiscovery beforeWW II (Talang akarField)

1912

Standard Oilexploration inSouth Sumatera

1961

Government signedrst PSC in Aceh

1944

Caltex Minas -largest oil eldin Southeast Asiadiscovered

1968

Pertamina wasformed

1962

Pan AmericanOil Company signedthe rst contract of

work with Pertaminaand Indonesia joinedOPEC

2001

Oil and Gas lawNo. 22/2001introduced,revoking law No. 44

1978

First LNG plantentered production

2003

PT Pertamina(Persero)established

2002

Upstream andDownstream bodiescalled BPMIGAS andBPH MIGAS wereestablished

2008

17 Negative list(Ministerial RegulationNo. 22/2008)

Indonesia withdrewfrom OPEC

2004

GovernmentRegulationNo. 35 & 36Regulation forupstream &downstreambusiness activities

2010

GR 79 on costrecovery and incometax for upstreamsector upstream& downstreambusiness activities

2013

SKK Migasestablishment toreplace BP Migas

2011

Implementingregulation- PMK 256- PMK 257- PMK 258


10/59


PwC

Indonesia is ranked 10th in world gasproduction, with proven reserves of 104trillion cubic feet in 2012. This ranksIndonesia as 11th largest in the worldand the second largest in the Asia Pacicregion1after China. Indonesias gas

industry is also being transformed bymore competitive liqueed natural gas(LNG) markets, new pipeline exports,and increasing domestic gas demand.Indonesias natural gas production hasdecreased in recent years (Indonesiasupplied 2.6% of the worlds marketedproduction of natural gas in

Key Indicators - Indonesia's oil and gas industryIndicator 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Reserves

Oil (Million Barrels) 8,610 8,630 8,930 8,400 8,220 8,000 7,760 7,730 7,262 N/A N/A

Proven 4,300 4,190 4 ,370 3 ,990 3 ,750 4 ,300 4 ,230 4 ,040 3,740 4 ,000 3,600*

Potential 4,310 4,440 4,560 4,410 4,470 3,700 3,530 3,690 3,660 N/A N/A

Gas (TCF) 188.34 185.80 187.10 165.00 170.10 159.63 157.14 152.89 150.70 N/A N/A

Proven 97.81 97.26 94.00 106.00 112.50 107.34 108.40 104.71 103.35 108.4 104*

Potential 90.53 88.54 93.10 59.00 57.60 52.29 48.74 48.18 47.35 N/A N/A

Production

Crude oil (BOPD) 1,130 1,096 1,018 972 1,006 994 1,003 952 918 826 798**

Natural gas ( MMSCFD) 7,986 7,823 7,660 7,283 7,460 7,962 8,857 8,415 7,110 6,825 7229**

New contract signed 17 23 5 28 34 34 21 31 39 N/A 7

Source:2004-2012 Oil Proven and Potential Reserves: ESDM2004-2012 Gas Proven and Potential Reserves: ESDM2013-2014 Oil and Gas Proven Reserves: Energy Information Administration, US Government2004-2012 Crude Oil and Natural Gas Production: BP Statistical Review of World Energy2013-2014 Crude Oil and Natural Gas Production: SKK Migas IPA Technical Divisionpresentation, 30 April 2014New contracts: ESDM

MBOPD: Thousand Barrels per DayMMSCFD: Million Standard Cubic Feet per Day* estimate** target

Resources and Production

2010 and 2.1% in 20122) and thecountry is facing a declining global LNGmarket share to LNG producers in Qatar.

After announcing its 2006 policy to re-orient natural gas production to servedomestic needs, Indonesia dropped from

its status as worlds largest exporterof LNG in 2005 to the worlds fourthlargest exporter of LNG in 2012, behindQatar, Malaysia and Australia. It exportsto South Korea, Japan, China, Taiwan,Mexico and India around 8% of the

worlds LNG exports.

1 BP Statistical Review of World Energy June 20132 BP Statistical Review of World Energy June 2013


11/59



Indonesia struggles to maintain LNGproduction levels and continuesto feel the pressure of balancingrevenues from gas exports withmeeting stronger demand fromits domestic market and it is likely

to increase LNG imports in 2014.Indonesias three existing LNGfacilities are based in Arun in Aceh,Bontang in East Kalimantan, andTangguh in West Papua (which

commenced rst production in mid2009). The Lampung LNG facilityis expected to start-up in 2014

while Pertamina has planned fulldecommissioning of Arun LNG inorder to convert it into an import

terminal.

Oil and Gas Contribution to Domestic Revenues

Year Domestic Revenue Oil/Gas Revenue % of contribution

Rp Trillion

2004 403 85 21.09 %

2005 494 104 21.05 %

2006 636 158 24.84 %

2007 706 125 17.71 %

2008 979 212 21.65 %

2009 847 126 14.88 %

2010 992 153 15.42 %

2011 1205 193 16.02 %

2012 1338 206 15.38 %

2013* 1502 181 12.02 %

2014* 1667 197 11.79 %

Source:Ministry of Finance (MoF)* Budget


12/59


0 PwC

Indonesia has a diversity ofgeological basins which continueto offer sizeable oil and gasreserve potential. Indonesia has60 sedimentary basins including36 in Western Indonesia that have

been well explored. Fourteenof these are producing oil andgas. In under-explored EasternIndonesia, 39 tertiary and pre-tertiary basins show rich promisein hydrocarbons.

About 75% of exploration andproduction is located in WesternIndonesia. The four oil-producingregions are Sumatra, the Java

Sea, East Kalimantan and Natunaand the four main gas-producingregions are East Kalimantan, Arun(North Sumatra), South Sumatraand Natuna.

Indonesias crude oil productiondeclined over the last decadedue to the natural maturationof producing oil elds combined

with a slower reserve replacementrate and decreased exploration/investment. During 2012,Indonesias total crude oilproduction,although up slightlyfrom 2011 at 0.918 million barrelsper day, was around two-thirds

Wells Completed

Source:SKK Migas IPA Technical Division presentation, 30 April 2014

* 2014 data is as of 25 April 2014

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

10

0

20

30

40

50

60

70

80

90

Dry HoleOil Gas Oil & Gas

of its 2001 daily production. Thenational oil production target for2014 is 1.01 million barrels perday. Despite this target, actualproduction for 2013 was 0.826million barrels per day and the

expectation for 2014 is 0.798barrels per day.

The number of wells completed inIndonesia dropped substantiallyin 2013 and there has been onlytwo productive wells completed(in addition to ve dry holes) upuntil the end of April 2014.


13/59



Unconventional Oil and Gas

Indonesias coal bed methane (CBM)reserves are estimated to be 453 Tcf

which is larger than Indonesias estimatednatural gas resource and ranks 6th in the

world. Its CBM reserves are spread acrossthe archipelago but are predominantlylocated in South Sumatra, SouthKalimantan, and East Kalimantan. Therst CBM contract was signed in 2008 andby the end of 2012 there were 54 CBMcooperation contracts in place. In 2013,four CBM production pilots began sellinggas to independent power producers.The Government has set daily productiontargets of 500 mmcf by 2015 rising to1,000 mmcf by the year 2020 and 1,500

by the year 2025.

Indonesias shale gas reserves areestimated to be 574 Tcf, which is even

greater than its CBM reserves.As at the end of 2013, theGovernment had received 75proposals spread across Sumatra,Sulawesi, Kalimantan and Papuaand ve, including Pertamina,

had completed a Joint Study.Pertamina signed the rstunconventional oil & gas (MNK)PSC for a work area in NorthSumatra (Sumbagut).


14/59

2 PwC

Survey approach4

Survey background

This is the sixth edition of the Indonesianoil and gas survey. The purpose of thesurvey is to help inform the public andprivate sectors in Indonesia and abroadabout Indonesias upstream petroleumindustry and to highlight some of thechallenges attracting optimal investmentand achieving its full potential. Wherepossible, we have compared currentresults with the results from prior

surveys to highlight trends and to assesswhether conditions are deteriorating orimproving.

Survey coverage

The 2014 report is based on the resultsof a condential comprehensive surveycirculated by PwC Indonesia to seniormanagement (including CountryManagers, CFOs, COOs, FinanceManagers and Operations Executives) of

a wide range of companies operating inthe Indonesian oil and gas industry

(E&P, drilling, oil eld services andseismic analysis companies). Refer tocharts 4.1 and 4.2 for background onthe survey participants. The surveyquestionnaire included both quantiableand qualitative data sections. Becauseof the incomplete nature of certainquantiable data responses we havebeen unable to utilise this data in itsentirety in our report.

The survey questionnaire was sentto individuals working for more than150 different companies. We received106 responses (representing 90different companies currently activein the Indonesian oil and gas sector).Responses from several companies wereaggregated and therefore represent thecombined views of several executives.Completed surveys came fromcompanies representing almost 80% of

Indonesias petroleum production in2013 and several recent entrants to the

Photo source: PwC


15/59

13

Survey approach


Indonesian oil and gas sector that arecurrently in the exploration stage.

As such, the views expressed by thesurvey participants can be viewedas representative conclusions on

Chart 4.1

Survey Participants background

Seismic2%

Other11%

Drilling8%

Oil eld services20%

E&P58%

Chart 4.2

Survey participants functional role

Finance40%

Head ofce8%

Operations6%

Senior/ Executive Management46%

issues that may be preventing theindustry from reaching its fullpotential, and to make credibleobservations about investmentand spending trends.


16/59


17/59

15

Supply and demand for oil and gas


A. Will Indonesian and world oil and gas demand rise or fallover the next ve years?

Chart 5.1 Indonesian and world oil demand

Remain stable

Moderately increase

No Opinion

Signicantly increase

54%

11%18%

10%

0%

4%

32%

71%

Indonesia

World

World

51%

Indonesia

42%

1%

59%

36%

0% 5%

6%

Chart 5.2 Indonesian and world gas demand

Remain stable

Moderately increase

No Opinion



18/59


6 PwC

The rise of industrial nations such as China and India will be the main

drive to increased demand in gas, particularly for industrial and powergeneration sectors.Survey participant comment

If there are signicantuntapped oil reserves, itwould be in challenginglocations such as deep seas.Survey participant comment

The worlds populationcontinues to grow and thedeveloping economies arebuilding a higher standard ofliving. All this requires moreenergy. Oil and gas are a keypart of that mix. Indonesiahas some mature basins andthe easy elds have beenfound. But there is a stilllot of potential for smaller

nds. This requires lots ofexploration.Survey participant comment

B. Are there signicant Indonesian oil reserves yet to be discovered?

Chart 5.3

Signicant oil reserves will be discovered?

Dont know/ No opinion22%

Yes39%

No39%

C. Are there signicant Indonesian gas reserves yet to be discovered?

Chart 5.4

Signicant gas reserves will be discovered?


Yes66%

No17%

Excluding those participants withno opinion, the responses were splitequally between whether there would be

signicant new oil reserves (yes: 39%) ornot (no: 39%).


19/59



Many difcult wells need to be developed.Survey participant comment

Gas discoveriesin Africa andpotentially [the]unlocking of[the] Artic willsignicantlyincrease world oiland gas reserves.Survey participant comment

D. Are there signicant oil and gas reserves will be discoveredglobally?

Chart 5.5

Signicant oil and gas reserves will be discovered globally?

Alternativeenergy, e.g.gas, needs to bedeveloped further.Survey participant comment


Yes

74%

No6%

Whilst only 39% of the surveyrespondents indicated that theybelieved that there are still signicantoil reserves to be discovered inIndonesia, 66% of respondentsthought there were signicant gas

reserves untapped, especially inEastern Indonesia (Papua, Maluku,etc.). We note that sentiment has

weakened signicantly since the2012 survey, when still 72% and97% of the participants believedthere would be (signicant) oiland gas reserves to be discovered(respectively), noting that at the

time geological opportunitieswere regarded as Indonesias mostattractive aspect.


20/59


8 PwC

E. Which of the following areas offer the greatest potential for

new discoveries of crude oil and gas reserves?Chart 5.6

Potential for new reserves

F. Will your company increase its explorations activities in the next three years?

Chart 5.7 Increase explorations activities

As can be seen in chart 5.6 above, the majority of oil and gas reserves are believed to be in Eastern Indonesia(Papua, East Timor, Maluku, etc.) followed by North Central Indonesia (Kalimantan, Sulawesi). Consistent

with prior surveys, participants are less optimistic about nding new oil reserves in North Western Indonesia(Sumatra) notwithstanding that this basin provides a large percentage of the countrys current oil production.In our 2012 survey, 50% of the survey participants indicated that new oil discoveries would be in EasternIndonesia, this percentage has now increased to 51%, whereas in 2014 only 20% of survey participantsbelieved new oil discoveries are expected in North Western Indonesia (2012: 24%). The expectations forSouth Western and North Central Indonesia have remained more or less the same with our 2010 and 2012survey results.

The high expectations for gas in Eastern Indonesia is a very promising feature of the industry feedback.

Eastern

Indonesia

(Papua,

East Timor,

Maluku, etc)

North Western

Indonesia

(Sumatera)

South

Western

Indonesia

(Java, Bali,

Lombok)

North Central

Indonesia

(Kalimantan and

Sulawesi)

0%

50%

40%

30%

20%

10%

60%

Oil

Gas

18%

21%

8%9% 2%

20%

71%

51%

70%

Governmentmust build gasinfrastructurefrom upstream todownstream whichprovides a good

incentive for foreignand local investors.Survey participant comment

Yes

73%

No27%

No37%

Yes63%

Indonesia

World


21/59



The demand for gas will be signicantly increased

when the infrastructure for gas transportationbecomes available.Survey participant comment

G. What will be the focus of your companys Indonesianexploration activities for the next three years?

Given the expectations of survey participants that there are still signicantundiscovered oil and gas reserves in Indonesia, it is not surprising that themajority of the participants indicated that they will focus on a combinationof oil and gas exploration for the next three years. This is generallyconsistent with prior surveys. Participants also indicated that they willfocus, albeit it to a lesser extent, on unconventional gas (e.g. CBM, CSG and

shale).

Chart 5.8

Focus of exploration activities

Sumatera

Jawa

Papua

Sulawesi

Kalimantan

Bali

Maluku

Oil Gas

Map of Indonesia

NORTHWESTERN

NORTHCENTRAL

EASTERN

SOUTHWESTERN

With the new [Oil& Gas] Law andits uncertaintieslooming, plusan unwelcomecrackdown onforeign expert

workers, this veryprospective countryfor Oil & Gasexploration ndsit hard to attractinvestment andcapabilities.Survey participant comment

Combinationof oil and gas

55%

Oil10%Unconventional gas

(e.g. CBM, CSG, shale)17%

Gas18%


22/59

0 PwC

Employment6

A. Compared to last year, will the level of employment inthe oil and gas industry in Indonesia increase or decrease?

The belief that signicant undiscovered oil and gas reserves exist inIndonesia, undoubtedly gives rise to the high percentage of surveyparticipants who think that employment in the Indonesian oil andgas industry will increase over the coming years. More than 42% ofthe participants believe that employment will increase however, thepercentage is lower when compared to the 2012 survey (52 %). Thebalance of the participants indicated that they think employment willremain stable (41%) or decrease (16%).

Chart 6.1

Employment in oil and gas industry

Still lots ofcompetition forskilled staff in theindustry. Thereforeevery country needsto look outsideto supplement.

Indonesia [is] nodifferent althoughIndonesia hasa bigger pool ofexperienced peoplethan many countries,given the size and ageof its industry.Survey participant comment Increase

41%


1%

Remain the same41%

Decrease

17%

Photo source: PwC


23/59

21

Employment


B. Compared to last year, will the number of employees inyour company increase or decrease?

Chart 6.2 Employee numbers

In regards to expatriate headcount,there has been a shift towardsexpecting numbers to remain thesame, or even decrease. A numberof survey participants commentedthat the decrease in expatriatenumbers is a worry as they have a

wealth of experience. One of thereasons for this decrease could bethe age limit now imposed by theMinistry of Energy and MineralResources (MoEMR). A largepercentage of survey participantsindicated that they expect to increasetheir hiring of local staff. However,a recurring theme in the commentsmade by survey participants was thatthey consider attracting qualiedand talented staff to be one of the

most signicant challenges facing

the industry in Indonesia andacross the globe, both now andin the future. Consistent with our2010 and 2012 surveys, severalrespondents commented onthe trend for skilled (national)employees to leave Indonesia to

work in other locations (mostlythe Middle East).

Decrease Remain thesame

Increase Signicantlyincrease

0%

50%

40%

30%

20%

10%

60%

70%

80%

28%

13%19% 19%

1%

44% 45%

69%

3%0%

3%0%

Local 2010 Expatriates 2010 Local 2012 Local 2014Expatriates 2012 Expatriates 2014

28%

8% 8%

36%35%

31%36%37%

59%

50%

5%

26%

The internationalmarket, particularlythe Middle East,attracts many of theskilled Indonesians

because of higherpay. This leaves thelocal industry shortof highly skilledtechnical resources.Further restrictionson Expat labourmakes it difcultto bring in skilled

technical resources,thus slowingindustry activity.Survey participant comment


24/59

Employment

2 PwC

C. Do you expect the industry to encounter difculties inhiring and retaining employees in 2014?

Chart 6.3

Difculties in hiring and retaining employees

It is very hard to get competent staff anywhere,but in Indonesia the new max age and length of

stay restrictions are hopelessly damaging. Comparee.g. with Malaysia which is retaining internationaltalent through 10 year Talent Pass work permitsincluding spouse employment.Survey participant comment

No29%

Dont know11%

Yes

60%


25/59

Employment


Retirement ages[are] too low and[it is] too difcult toget work permits forhighly skilled andexperienced expatsover 55.Survey participant comment

Developing skilled staff requires commitment and a long termplan. At this time there is just mixed signals that impact foreigninvestor commitment. Bureaucracy and red tape as well ascomplicated employment laws are discouraging for foreigninvestors.Survey participant comment

D. Does the Indonesian oil and gas industry have a sufcientnumber of skilled staff to perform these activities?

That more than half (54%) of surveyparticipants (Chart 6.4) still believe

that the Indonesian oil and gassector lacks a sufcient number ofskilled staff, combined with the factthat 60%(Chart 6.3) also expectdifculties in hiring and retainingemployees, is not a positive sign forthe industry. A number of surveyparticipants named the newly issued

manpower regulations (MoEMRissued Decree No.31/2013 on

Expatriate Utilisation and theDevelopment of IndonesianEmployees in the Oil and GasBusiness, dated 24 October 2013)as a partial cause of the issuesmentioned above.

Chart 6.4

Sufcient skilled staff

No52%

Dont know9%

Yes39%


26/59

4 PwC

Capital expenditure7

A. What are your companys plans for capital spendingcompared to last year?

There are a numberof mega projects inthe process or tryingto get launched (IDD,Jangkrik, Tangguh 3,Cepu, Masela) whichare run by IOCs. Thisis where the largestcapital will comefrom. These companieswant to invest in theseprojects. Longer term,the late 60s PSC willexpire and SOE/NOCswill play a bigger roleby taking over these bigold PSCs.Survey participant comment

As can be seen in Chart 7.1 onthe next page, the participantsgeneral view seems to be thatcapital spending will stay thesame or even increase over thecoming ve years. This is moreor less consistent with the 2012

survey results. However, a farbigger portion of the surveyparticipants now indicate thatthere will be no change, or evena decrease. This pessimistic viewunfortunately comes at a time

when the GoI is keen to see anincrease in investment in theIndonesian oil and gas industry.Some survey participantsindicated that they will not

spend any money in Indonesiagoing forward, as no budget hasbeen allocated to Indonesia andtheir companies had decided tospend their investment fundselsewhere. This is a trend thatstarted in 2012 and does not

augur well for Indonesian reservereplacement.

Photo source: PwC


27/59

25

Capital expenditures


Chart 7.1 Capital spending in Indonesia and internationally

B. What will be the primary source ofcapital for the Indonesian oil and gasindustry over the next ve years?

As can be seen in Chart 7.2, the primary anticipatedsource of capital continues to be related party debt/parent company funding, which is consistent withprior year surveys and not surprising as the industryis dominated by a few large international players.The use of third party debt seems to have increased

slightly compared to the 2012 survey. Given recentlow interest rates, we would have expected the use ofthird party debt to play a more substantial role. It isinteresting to see that the anticipated increase in theuse of public equity as a primary capital source hasbeen identied by respondents (from 5% in 2012 to9% in 2014).

Chart 7.2 Source of capital

Public Equity9%

Related party debt/Parent Company funding

78%

Third party debt

13%

Decrease No change Increase Signicantly

increase

0%

25%

20%

15%

10%

5%

30%

35%

40%

45%

50%

12%

16%14%

22%

18%

10%

7% 7%6%

36%

30%

44% 45%

4%

1%

6%8%

2%4%

34%36%37%

33%

23%

29%28%

25%

22%22%

19%

Dont know

Indonesia Reserve acquisitions International Reserve acquisitions

Indonesia Development International Development

Indonesia Exploration International Exploration


28/59


6 PwC

Chart 7.4 Investment appetite

Decrease48%

Remain the same

26%

Increase 25%

Signicantly increase1%

Not surprisingly a majority of theindustry participants believe that the

need for capital will continue to increaseover the next ve years. The anticipatedincrease in capital spending is likely tobe a result of the increased expenditureson mature elds and the focus on moreremote (i.e. difcult) exploration/deepwater activities which are morecostly to run/operate. The fact that

Chart 7.3 Need for capital

Signicantlyincrease

18% Remain the same13%

Increase64%

Decrease5%

The looming [new Oil & Gas] law and related changes will make itvery hard to make investment decisions until this is fully claried.Also the proposed mandatory participation of regional authoritiesinvestment vehicles in new PSCs is a major obstacle and is highly likelyto frustrate progress.Survey participant comment

C. Compared to 2012, how will the Indonesian oil and gasindustrys need for capital change over the next ve years?

industry participants still expect theneed for capital to increase, but at the

same time almost half of respondentsare indicating less investment appetitefor Indonesia, is a red ag for theIndonesian upstream sector.


29/59



D. What do you anticipate to be the average US$ price in perbarrel of crude oil in 2014, 2015 and 2016?

Chart 7.5

Average price in US$ per barrel of crude oil

The vast majority of the survey

respondents indicated that theyexpect that the price of crude oil

would remain in the US$101120per barrel range for 2014 but eitherincrease to US$ 120135, or decreaseto US$ 81100 per barrel in 2015(the survey was undertaken in early2014 when oil prices ranged betweenUS$101 and US$120 per barrel).Not surprisingly, the further intothe future the projection is carried,

the wider the range of responses

from respondents. Although someof the respondents thought thatthe price of oil would go belowUS$81100 per barrel, none ofthem thought that the price of oil

would exceed US$135 per barrelin 2016.

2014 projection from2012 survey

2014 2015 20160%

50%

40%

30%

20%

10%

60%

70%

80%

$50 or less $51 - $65 $66 - $80 $81 - $100 $101 - $120 $121 - $135 $136 or more

35%

62%

68%

12%

38%

53%

32% 34%

24% 28%

0%

6%

0% 1%0% 0%0%0% 1%0%3% 3%

Price per barrel

Year

Expecta

tionofsurveyparticipants


30/59

8 PwC

Challenges facing

the industry

8

To gain an understanding of the most critical challenges facing the

industry we asked survey participants to rate 15 different challengesconfronting the Indonesian oil and gas industry, as well as indicatingany other challenges they deemed relevant. On a scale of 1 to 5 (1being Signicantly Important, 3 being Moderately Important and 5being Not Important at All) survey participants were asked to rate thefollowing challenges.

Table 8.1

Critical Industry Challenges

Confusion as to the roles of the central,provincial and regional governments

Local government relations

Interference from other governmentagencies, such as the tax authorities

Confusion as to the role of SKK Migas and theMinistry of Energy and Mineral Resources

SKK Migas performance Contract sanctity

Community relationsConfusion over Law No. 22/Implementingregulation and GR 79/2010

Security of assets, people and ownershiprights

Confusion over SKK Migas regulations/grandfathering of prior Pertamina rulings

Labour regulationsConfusion over energy policy and supporting

blueprints (gas utilisation etc.)

Upcoming presidential electionUncertainty over cost recovery and SKK Migas /

BPKP audit ndingsNew regulation (such as: Land andBuilding Tax on PSCs)

Photo source: PwC


31/59

29

Challenges facing the industry


Contract Sanctity is most important for aninvestor, any change of law/regulation will not

supersede [the] rights and obligations [of the] PSC.The new law/regulation should be applicable tonew PSC instead [of] unilaterally force into effect to[an] old PSC.Survey participant comment

Top ve challenges facing the industry

Table 8.2

Challenge

2014 survey % ofresponses rated issueas 1 - Signicantly

Important


Important


Important

Interference fromother governmentagencies, such as thetax authorities

59% 49% 55%

Contract sanctity 51% 54% 48%

Confusion as theroles of the central,provincial & regional

government

49% 42% 38%

New regulations 48% - -

Uncertainty over costrecovery and SKKMigas/ BPKP auditndings

44% 48% 48%

The challenges highlighted above inTable 8.2 were also included in thetop ve challenges in our 2012 and2010 surveys.

The newcomer (i.e. new regulations)in the top 5 of the signicantlyimportant challenges in the 2014survey results is probably notsurprising given the recently issuedregulations related to Land andBuilding Tax on PSCs, as well asthe manpower regulations for theupstream and oileld service sector

which stipulates the maximum agefor foreign workers at 55 years.The 2014 survey participants are

clearly aligned with the past two

surveys in terms of the otherareas which continue to besignicantly important to theindustry: interference from othergovernment agencies, such as thetax authorities; Contract sanctity;confusion as to the roles of thecentral, provincial and regionalgovernments; and uncertaintyover cost recovery and SKKMigas/BPKP audit ndings.


32/59


0 PwC

Chart 8.1

Survey participants views on the development of challenges over the next 12 months

2010

Gettingsignicantly

worse

Stayingabout

the same

Getting

signicantlybetter

1

3

5

3.003.213.15 3.15 3.10

3.48

3.34

2.10

3.30

3.04

3.40

3.273.11

Interferencefrom other

governmentagencies,

such as taxauthorities

Newregulation(such as:Land and

Building Taxon PSCs)

Uncertainty overcost recovery

and SKK Migas/ BPKP audit

ndings *

Contractsanctity

Confusionover LawNo. 22/

Implementingregulation

: improving

: staying about the same

: deteriorating

2012

Change from 2012

survey

2014

New oil and gas law should stimulate the industry to invest [in] oil and

gas in Indonesia.Survey participant comment

Although not directly impacting oil and gas, the changes in miningregulations and the many disputes regarding ownership have a majorimpact on investor sentiment and therefore the ability to raise fundsto invest in Indonesian oil and gas projects. The rule of law needs to bestrengthened.Survey participant comment

* risk of suspense account treatment added for this issues in the 2014 survey


33/59



Costs [are]rising as industrymatures, so [the]governmentresponds byincreasingmicromanagementwhich increases

costs furtherSurvey participant comment

Chart 8.2

Survey participants views on the likely status of challenges over thenext one to ve years

1

3

5

2.932.80

2.70

3.16 3.073.113.10

2.70

3.07

2.89

Contractsanctity

Interferencefrom other

governmentagencies, such

as the taxauthorities

2.93

2.80

3.12

Gettingsignicantly

worse

Stayingabout the

same

Gettingsignicantly

better

2010: improving

: staying about the same

: deteriorating

2012 2014

Uncertaintyover cost

recovery andSKK Migas /BPKP auditndings*

New regulation(such as: Landand BuildingTax on PSCs)

Confusion overLaw No.22/

Implementingregulation

Change from 2012survey

As can be seen in Chart 8.1, survey participants were generally neutralon the likely developments in these challenges over the next 12 months.We noted that survey participants expected some improvement in thedevelopment of these challenges over the longer term although they weremore pessimistic about the pace of improvement compared to the viewsof respondents in the 2012 survey (Chart 8.2). We suspect that the mainreasons behind this cautious view may be that many of the challengesconfronting Indonesia, such as regulatory reform, require consistentcoordination between multiple Ministries in the GoI a behavior which hasnot necessarily been observed in recent years.

* risk of suspense account treatment added forthis issues in the 2014 survey


34/59


2 PwC

A. Over the next 12 months what will happen to the level ofgovernment regulation which affects the industry?

As can be seen in Chart 8.3 below, the majority of respondentsbelieve thatthe government regulations will remain the same or actually improve or

signicantly improve. It is difcult to assess whether respondents havefactored in the proposed new Oil and Gas Law in forming their view.

Further deteriorate30%

Signicantly improve8%

Improve17%

Remain the same45%

Chart 8.3 Government regulation


35/59


33Opportunities, Risks and Rewards 33Opportunities, Risks and Rewards

Photosource:PwC


36/59

4 PwC

Competitiveness9

Indonesias petroleum industry has for decades been viewed by internationalpetroleum investors as an attractive destination for investment, however forsome years now there has been concern that the countrys competitiveness isslipping. To gauge the accuracy of this concern we asked the survey participantsto rate Indonesias competitiveness compared to other countries on thefollowing features (1: highly competitive, 3: neutral, 5: not competitive at all):

Table 9.1

Feature

Geological opportunities Infrastructure

Trained workforce Risk premium

Political stability Regulatory framework

Environmental regulations Contract and project approvalprocess

Ease of foreign ownership The existing scal framework

Photo source: ExxonMobil Oil Indonesia Inc.


37/59

35

Competitiveness


What are the most attractive features of investing inIndonesia?

Table 9.2

Feature 2014 Score 2012 Score Change from2012 survey

Political stability 2.6 2.8

Trained workforce 2.5 2.4

Ease of foreign ownership 3.0 2.9

Environmental regulation 2.9 2.8

Geological opportunities 2.3 1.9

Please note that all of the above features were also highlighted as the top 5competitive features in the 2012 survey.

As can be seen in Table 9.2, survey participants indicated that Indonesiasmost attractive features for investment have remained almost the samecompared to the last survey. Although its geological opportunities hashistorically always been regarded as Indonesias best feature for oil andgas activities, this feature has been ranked lower now, albeit it is stillconsidered one attractive feature. It is interesting to note that politicalstability is getting more recognition as one of Indonesias most attractive

features and this reects positively on the GoI leadership in this youngdemocracy. Against a backdrop of political unrest and uncertainty in manyother emerging markets as of 2014, Indonesia remains open for foreigninvestment in the upstream sector. Although an NOC exists, it has notcrowded out Indonesian and foreign investors.


38/59

Competitiveness

6 PwC

What are the least competitive features of investing in Indonesia?

Table 9.3

Feature 2014 Score 2012 ScoreChange from2012 survey

Contract and project approval process 3.5 3.5

Existing scal framework 3.4 3.5

Regulatory frame work 3.6 3.4

Infrastructure 3.3 3.2

Risk Premium 3.3 3.2

Please note that the above features were alsohighlighted as the 5 least competitive featuresin the 2012 survey.

The fact that the views on the regulatoryframework have deteriorated is not surprisinggiven the recent regulatory developmentsaround the suspense account process, landand buildings tax and the conditions onhiring of expatriate labour in the upstreamand oileld service sectors. This may also be

the reason why risk premium scored lowercompared to our 2012 and 2010 surveys.

In addition, we asked survey participants theirviews on the developments they expectedin the competitiveness of these features.

As shown in charts 9.1 and 9.2, surveyparticipants indicated that they believe thatIndonesias most competitive features willslightly improve or stay the same at best overthe coming 12 months and Indonesias lesscompetitive features will remain the same, orget slightly worse.

However it should be noted that, as inour 2010 and 2012 surveys, participantsremain relatively optimistic regarding thedevelopment of all features over the comingve years.

Comparing the results of our past surveys in2005, 2008, 2010 and 2012 with our 2014survey suggest that there has been littlepositive change in features described asproblematic.


39/59

Competitiveness


Gettingsignicantly

worse

Staying aboutthe same

Signicantlyimproving 1

3

5

2.59

2.64

3.06

2.86

3.193.17

2.81

A JIHGFEDCB

Geological opportunities

Trained workforce

Enviromental regulations

Political stability

Infrastructure

Ease of foreign ownership

The existing scal framework

Risk premium

Contract and project approval process

Regulatory framework

A

J

I

H

G

F

E

D

C

B

2.88

3.053.00

Development

Chart 9.1Development of competitiveness (within 12 months)

Chart 9.2Development of competitiveness (within 1- 5 years)

Gettingsignicantly

worse

Staying aboutthe same

Signicantlyimproving 1

3

5

2.37

2.50 2.55

2.66

A F JIE HGDCB

Geological opportunities

Trained workforce

Political stability

Infrastructure

Ease of foreign ownership

The existing scal framework

Risk premium

Contract and project approval process

Regulatory framework

Environmental regulationsA F

J

I

E

H

G

D

C

B

2.53

2.882.91

Development

2.96 2.94 2.91

Although no signicant changes were noted compared to the 2012 surveyresults, it seems that survey participants are slightly less optimistic andexpect less improvement on certain challenges during the 1 - 5 year

window. Again this may be because the majority of these challenges areregarded as structural and require ministerial coordination.


40/59

Competitiveness

8 PwC

Indonesias competitiveness compared to other oil & gasproducing countries

Survey participants were also asked to rate the relative competitiveness ofdifferent countries in comparison with Indonesia on four different features,namely geological opportunities, infrastructure, political stability andregulatory framework. Please see the map on the inside of this fold outpage for the results.


41/59

Nigeria 2 01 2 2 014

Geologicalprospects(including accessto acreage)

Infrastructure

Political stability

Regulatoryframework

Chart 9.3

Angola 2 01 2 2 014


Infrastructure

Political stability

Regulatoryframework

Vietnam 2 01 2 2 014


Infrastructure

Political stability

Regulatoryframework

UAE 2 01 2 2 014


Infrastructure

Political stability

Regulatoryframework

Venezuela 2012 2014


Infrastructure

Political stability

Regulatoryframework

China 2 01 2 2 014


Infrastructure

Political stability

Regulatoryframework

: More competitive than Indonesia

: Less competitive than Indonesia

: Same as Indonesia

Norway 2012 2014


Infrastructure

Political stability

Regulatoryframework

Opportunities, Risks and RewardsCompetitiveness

PwC Indonesia

USA 2 01 2 2 014


Infrastructure

Political stability

Regulatoryframework

Thailand 2 01 2 2 014

Geologicalprospects

(including accessto acreage)

Infrastructure

Political stability

Regulatoryframework

Malaysia 2012 2014


Infrastructure

Political stability

Regulatoryframework

Australia 2012 2014


Infrastructure

Political stability

Regulatoryframework


42/59

Competitiveness


As can be seen in chart 9.3 on theprevious page, based on surveyresponses Indonesia appears to belosing its competitive edge over otheroil and gas countries. Of the countriesincluded in the survey, Norway,

Australia, Malaysia, China, the USAand the UAE are seen as competitiveor better than Indonesia across thefour features of geological prospects,infrastructure, political stability andregulatory framework.

Indonesia remains more competitivethan Nigeria, Venezuela and Angolain all but geological prospects.Compared to Thailand, Indonesiais thought to have better geological

prospects and political stability(which we assume is a reectionof the ongoing political issues inThailand), whilst perception is thatIndonesia now lags Thailand in termsof infrastructure and regulatoryframework.

For completeness and balance,please note that the surveyrespondents were also asks tocomment on other features,including Indonesia's relativeposition in regard to ease of

foreign ownership and having atrained workforce. In these twoareas Indonesia is regarded ashaving slightly more favourableconditions than other traditionaloil and gas investmentdestinations.


43/59

0 PwC

Other Challenges10

A. There have been several high prole arrests in relation tocorruption. Do you think that these will improve the perceptionof Indonesias commitment to ghting corruption?

Chart 10.1

Do the recent arrests have a positive impact on the perception around thecommitment to ghting corruption?

No impact13%

Dont know5%

Yes

61%

No

21%

Photo source: PwC


44/59

41

Other challenges


As can be seen in chart 10.1, themajority (61%, 2012: 58%) of thesurvey participants indicated thatthe recent high prole arrests inrelation to corruption are having apositive impact on the perception

of Indonesias commitment toghting corruption. However, itshould be noted that a substantial34% of respondents are still of theopinion that the GoIs approach has

Indonesia hasall the resourcesto save its oiland gas forexport and [inits] own marketdevelop CBM andgeothermal powerplants to deliver

electricity to theentire countryat a very low kWrate.Survey participant comment

2025 and 2050 Targeted Energy Mix

Crude oil CoalNatural gasNew and

renewableenergy

Source:MoEMR

25%

20%

25%

24%

31%

30%

2025

2050

22%

23%

no impact or no positive impacton perceptions of commitmentto ghting corruption. This maybe an indication that surveyparticipants are remainingskeptical about the effectiveness

of the GoIs approach to ghtingKKN.


45/59

Other challenges

2 PwC

As shown in Chart 10.2, almost half of the survey participants believe that there will besignicant changes (positive or negative) after the 2014 elections, whereas 51% of theparticipants indicated no (signicant) impact as a result of the elections on the industry.

B. This year (2014) Indonesia will hold general elections and presidentialelections. Do you anticipate signicant changes in the industry after theelections?

Chart 10.2

Do you anticipate signicant changes in the industry after the elections?

No impact14%

Dont know1%

Yes48%

No37%


46/59

Other challenges


C. Do you foresee Indonesia being a net exporter ofhydrocarbons in the future?

Chart 10.3Yes, within 5 years

10%

Yes, within 10 years12%



No, never56%

Declining oil production andincreased consumption resultedin Indonesia becoming a net oilimporter in late 2004. This factor,along with high oil prices in 2004-2008, led the Government tosubstantially scale back the domesticfuel subsidy in 2008 and to decide

to temporarily withdraw from theOrganisation of Petroleum ExportingCountries (OPEC) an organisationrepresenting approximately 45%of world oil production. As theonly Asian member of OPEC since1962, the Government indicated

at the time that it will considerrejoining OPEC if the countrysoil production can be increasedand it can become a net exporteragain. We asked the surveyparticipants whether theyforesee Indonesia becoming a netexporter of hydrocarbons again in

the future. More than half (56%)indicated that they didnt thinkthat Indonesia would ever becomea net exporter of hydrocarbonsagain.


47/59

Other challenges

4 PwC

D. Do you think Indonesia is ready forunconventional gas (eg. CBM/CSG, shale gas)?

Chart 10.4

Dont know10%

Yes33%

No57%

E. Do you think Indonesia has the knowledge and expertise toextract and produce unconventional gas?

Chart 10.5Dont know

10%

Yes25%

No65%


48/59

Other challenges


F. Should the government provide more incentives forunconventional gas?

Chart 10.6

Dont know

7%

Yes90%

No3%

Survey participants clearly seethat unconventional gas is a viablealternative for conventional oiland gas. In order to stimulate thedevelopment of unconventionalresources, they indicated that theGoI should provide more incentives.

As can be seen in Chart 10.6,90% of the survey participantsindicated that they believe thatmore incentives for unconventionalgas should be given. Notingthat 65% of survey participantsindicated that they dont think thatIndonesia has the knowledge and/or

expertise to extract and produceunconventional gas(as illustratedin Chart 10.5) one queries

whether the recent changes inthe 2014 Negative Investment Listunder the Investment Law willhave an impact. The amendments

close a number of oileld servicesectors to new foreign investment(eg. onshore drilling) and mayimpede the accessibility ofunconventional drilling and wellexpertise if not available locally.


49/59

Other challenges

6 PwC

G. Has your company ever considered leaving Indonesiabecause of the issues described earlier?

Chart 10.7

Ever considered leaving Indonesia?

H. Are you satised with the current return on investmentyou are getting from your operations in Indonesia?

Chart 10.8

Satisfaction with return on investment

Dontknow33%

Yes15%

No52%

2010 survey2012 survey2014 survey

2014 survey 2012 survey 2010 survey

Dontknow33%

Yes27%

No40%

Dontknow37%

Yes30%

No33%

Dontknow17%

Yes53%

No30%

Dontknow20%

Dontknow16%

Yes

24%

Yes32%

No56%

No52%


50/59

Other challenges


I. Do you think that potential new investors are aware of

the issues the industry is facing?Chart 10.9

J. Do you think that the Open Access Policy on oil and gaspipelines will have any impact on your current productionplans?

Chart 10.11

K. Do you think that the Open Access Policy on oil andgas pipelines will have any impact on your decision to

invest in the Indonesian oil and gas industry?Chart 10.12

Dont know23%

Yes52%

No

25%

Dont know34%

Yes41%

No25%

Dont know31%

Yes49%

No20%

All stakeholdersneed to support anyeffort to combatthe decline of

mature elds andgovernment needs togive competitive scalterms and supportfor developmentof stranded eldsand for explorationactivities.Survey participant comment


51/59

Other challenges

8 PwC

Dont know27% Yes

27%

No46%

2010 survey

L. Do you anticipate a signicant improvement in the oiland gas industry investment environment over the next 5to 10 years?

Chart 10.13Improvement in returns expected?

2012 survey2014 survey

Despite the problems and issuesnoted in the earlier sections ofthe survey, investors are notcurrently considering leavingIndonesia even though a growing

percentage of respondents werenot satised with their return oninvestment (52%, Chart 10.8).We assume investors choose tostay mainly due to Indonesiaspolitical stability and its remaininggood geological prospects. Notehowever on an optimistic note,and consistent with a desire to

Dont know28% Yes

41%

No31%

stay in Indonesia, 45 % of theparticipants indicated anticipatedimprovements in the returnfrom the oil and gas industry inIndonesia. In 2012 this percentage

was only 41%. In addition, theparticipants who indicateddont know have decreasedfrom 28% in 2012 to only 17% in2014 suggesting again a mood ofcautious optimism.

Dont know17%

Yes45%

No38%

The problem island access andcoordination

with the regionalgovernments. Whenit takes a year or so topermit a well, it is notpossible to executean unconventionalprogram.Survey participant comment


52/59

Other challenges


Photosource:PwC



53/59

0 PwC

About PwC11

Why PwC?

As the worlds largest professionalservices network and one of the bigfour accountancy rms, PwC rmsprovide Industry-focused assurance,tax and advisory services for public andprivate companies. Close to 184,000people in 157 countries connect theirthinking, experience and solutions

to build trust and enhance value forclients and their stakeholders.

A globally integrated rm

Being part of a global network meanswe can invest in priority clients, sectorsand markets and deliver leadingedge ideas, products and servicesmore quickly and effectively thanour competitors. We work acrossborders without the constraints ofgeographic considerations and we

work to a global standard and quality.Our global network structure enablesquick decision-making and worldwidedelivery of the best resources.

About the PwC network

We are organised into industry groups,of which the oil and gas industry groupis one of the largest. Our industry focusensures our people have both a broadoverview of the marketplace and a deepunderstanding of the industries andmarkets in which they specialise.

Our oil and gas industry group haspriority status in terms of investment

and resources in all key marketsincluding Indonesia, reecting our

worldwide dominance in this market.

Our strength in the oil and gas industryis one of which we are proud. Thismeans we are the most committed rmto achieving oil and gas clients needsand actively participate in the industryin all countries in which the industry isactive. We work closely with our oil andgas clients, offering the benets of ourexperience, to help achieve their goals.

Photo source : PwC


54/59

51

About PwC


PwC Indonesia

PwC Indonesias (PwC or we) oiland gas team brings together localknowledge and experience withinternational oil and gas expertise.Our strength in serving the oil andgas industry comes from our skills,our experience and our network ofpartners and managers who focus100% of their time on understandingthe oil and gas industry and

working on solutions to oil and gas

industry issues. Detailed oil and gasknowledge and experience ensuresthat we have the background andunderstanding of industry issuesand can provide sharper, moresophisticated solutions.

PwC is organised into four Linesof Services, each staffed by highlyqualied experienced professionals

who are leaders in their elds. Thelines of service are:

Assurance Services whichprovide innovative, highquality, and cost-effectiveservices related to anorganisations nancialcontrols, regulatoryreporting, shareholder valueand technology needs.

Tax Services which providea range of specialist taxservices in three main areas:tax consulting, tax disputeresolution, and compliance.Some of our value-driventax services include:

- International taxrestructuring

- Mergers andacquisitions

- Compliance services

- Dispute resolution

- Indirect taxes

- Transfer pricing; and

- Tax process reviews

Advisory services which

provide comprehensiveadvice and assistancerelating to transactions,performance improvement

and crisis management,based on long-termrelationships with clientsand our nancial analysisand business process skills.

Consulting Services helpyou to improve yournancial and operationalprocedures and internalcontrols in a wide

variety of areas withinyour organisation. OurConsulting practice has thefollowing sub-divisions:

- Financial Effectiveness- Forensics

- Operations

- People & Change

- Sustainability

- Technology

For companies operating in theIndonesian oil and gas sector, thereare some compelling reasons tochoose PwC as your professionalservices rm:

We are the leading advisorin the industry, bothglobally and in Indonesia,

working with moreexplorers, producers andrelated service providersthan any other professionalservices rm. In particular,PwC audits over 60% (interms of production) of theoil and gas producers inIndonesia under ProductionSharing Contract

agreements, and providesother professional servicessuch as taxation andadvisory services to oil andgas producers in all stages oftheir development.

We have operated inIndonesia since 1971and have over 1,600professional staff, including51 Indonesian nationalpartners and expatriate

technical advisors, trainedin providing assurance,advisory, consulting and taxservices to Indonesian andinternational companies.

Our Energy, Utilities andMining (EU&M) practicein Indonesia comprisesover 300 dedicatedprofessionals across ourfour Lines of Service. Thisbody of professionalsbrings deep local industryknowledge and experience

with international miningexpertise and provides us

with the largest group ofindustry specialists in theIndonesian professional

market. We also draw on thePwC global EU&M network

which includes some 3,400qualied industry experts.

Our commitment tothe oil and gas industryis unmatched anddemonstrated by our activeparticipation in industryassociations in Indonesia andaround the world, and ourthought leadership on the

issues affecting the industry.Through our involvementwith the IndonesianPetroleum Association (IPA)

we help shape the future ofthe industry.

Our client service approachinvolves learning aboutthe companys issuesand seeking ways to add

value to every task weperform. Detailed oiland gas knowledge and

experience ensures that wehave the background andunderstanding of industryissues and can providesharper, more sophisticatedsolutions that help clientsaccomplish their strategicobjectives.

PwC Indonesia (www.pwc.com/id)


55/59

About PwC

2 PwC

For further information, please do not hesitate to contact any of the following specialists from our IndonesianEnergy, Utility and Mining (EU&M) practice:

Tim [email protected]

T: +62 21 528 90370

Anthony J [email protected]

T: +62 21 528 90642

Gadis [email protected]: +62 21 528 90765

Suyanti [email protected]

T: +62 21 528 76004

Assurance

Tax

Advisory

Consulting

Yanto [email protected]: +62 21 528 91053

Daniel [email protected]: +62 21 528 90962

Joshua [email protected]: +62 21 528 90833

Yusron [email protected]: +62 21 528 91072

Christina [email protected]: +62 21 528 75433

Toto [email protected]: +62 21 528 91205

Firman [email protected]: +62 21 528 90785

Yudhanto [email protected]: +62 21 528 91059

Paul van der [email protected]: +62 21 528 91091

Anthony [email protected]: +62 21 528 90687

Gabriel [email protected]: +62 21 528 90857

Dwi [email protected]: +62 21 528 91050

Fandy [email protected]: +62 21 528 90749

Antonius [email protected]: +62 21 528 90972

Michelle [email protected]: +62 21 528 75919

Tjen She [email protected]: +62 21 528 90520

Sacha [email protected]: +62 21 528 90968

Mirza [email protected]: +62 21 521 2901

Charles [email protected]: +62 21 528 75872

Gopinath [email protected]: +62 21 528 75772

Hadsyah [email protected]: +62 21 528 90774

Michael [email protected]: +62 21 528 90340

Agung [email protected]: +62 21 528 90666


56/59


Acknowledgements

53

PwC Indonesia appreciates the involvement of those companies whichtook the time to participate in this survey and share their thoughts andopinions with us.

Photographic contributions

We would like to acknowledge and thank the following companieswhich provided photographs for inclusion in this report (inalphabetical order):

Chevron IndoAsia Business Unit. ExxonMobil Oil Indonesia Inc. Talisman Energy Inc.

Editors

Anthony J Anderson

Paul van der Aa Kathy Lindsay

Other contributions

We would also like to acknowledge and thank the followingindividuals which assisted in the compilation of this report:

Ade Marni Aranti Syamsuddin Indah Setiawati Kertawira Dhany Nicolas Saputra

Acknowledgements12


57/59

PwC

Glossary

4

BOPD Barrels of Oil per Day

BPH Migas Badan Pengatur Hilir Minyak dan Gas Bumi (Oil and GasDownstream Regulatory Agency)

BPKP Badan Pengawasan Keuangan dan Pembangunan(Government Audit Body)

CFO Chief Financial Ofcer

COO Chief Operating Ofcer

EU&M Energy, Utilites, and Mining

GoI Government of Indonesia

IPA Indonesian Petroleum Association

KKN Corruption, Collusion and Nepotism

LPG Liquied Petroleum Gas

MoEMR Ministry of Energy and Mineral Resources

Pertamina Perusahaan Pertambangan Minyak dan Gas Bumi Negara(The Indonesian State Oil Company)

PSC Production Sharing Contract

SKK Migas Satuan Kerja Khusus Pelaksana Kegiatan Usaha HuluMinyak(Government Executive Agency for Upstream Oiland Gas Business Activities)

US$ United States Dollar

VAT Value Added Tax

Glossary13


58/59



59/59

indonesian oil and gas survey-2014 pwc

Documents