Presented by:

David Aron – Managing Director Petroleum Development Consultants, UK

Shangri-La Hotel, Jakarta

21 June 2012

Gas Development Master Plan Gas Supply Issues – Consensus Building Workshop

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Contents

• Why does supply matter?

• Reserves and resources - definitions

• Reserves and resources – a debate

• East Natuna – significant but a challenge

• Coal bed methane – the long-term potential

• Flaring – significant in terms of supply?

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Why does supply matter?

• Supply is the foundation for the Gas Development Master Plan

• However supply is not a fixed number as it depends on the gas price. Lower gas prices mean that reserves are lower. Higher gas prices mean that reserves are higher.

• Reserves are classified according to Society of Petroleum Engineers (SPE) definitions

• Resources are less certain but again are classified according to the SPE definitions

• Indonesia does not appear to adhere to these definitions

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SPE Resource Classification

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Definitions • Reserves are those quantities of petroleum anticipated to be

commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy four criteria: they must be discovered, recoverable, commercial, and remaining (as of the evaluation date) based on the development project(s) applied.

• Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the applied project(s) are not yet considered mature enough for commercial development due to one or more contingencies. Contingent Resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality

• Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects.

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Project Maturity

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Indonesia: BP Migas Data Annual Report 2010

Produced Not Yet Produced Total (TSCF)

Proven Potential Proven Potential

36.08 15.08 68.90 33.67 153.72

BP Migas take the total (which appears to be proven + probable + possible) and divides this by 2010 production (~3.3 TSCF) This gives a reserve/production ratio of 153.72/3.3 = 46 years However the total of 153.72 TSCF is not reserves – it is a combination of reserves and prospective resources Note: the technical existence of the resource has to be combined with a development plan

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Gas Sector Development Plan, Becip-Franlab, 2003

Producing Non- Producing Total

Proven Probable Possible Total Proven Probable Possible Total

38.028 11.791 15.130 64.950 52.272 30.916 28.451 111.639 176.589

Based on 176.589 TSCF and production 2001 (2.8 TSCF) this would give a reserve/production ratio = 63 years However Becip-Franlab noted that the total included Natuna East with resources of 46 TSCF. If this is excluded the reserve/production ratio = (176.589 – 46)/2.8 = 46 years This suggests that current BP Migas figures correctly exclude Natuna East

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BP Statistical Review, June 2012

• This shows proven reserves for Indonesia of 104.7 TSCF as end 2011

• BP calculates a reserve/production ratio of 39.2 years

• The total proven (producing + non-producing) estimate from BP Migas is 104.98 TSCF as at end 2010.Based on production of 3.3 TSCF in 2010 gives a reserve/production ratio of 104.98/3.3 = 31.8 years

• This seems about right for the very good reason that in practice the producers will not go exploring when the ratio is much above 30 years as they would not be able to commercialise their discoveries

• However reserve replacement is not ideal. Gas discovered in 2010 was 2.2 TSCF which is a reserve replacement of only 2.2/3.3 = 66.7%

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East Natuna

• Discovered in 1973

• Total volume of gas = 222 TSCF

• 71% carbon dioxide, 28% methane plus heavier hydrocarbons, 0.5% hydrogen sulphide and 0.5% nitrogen

• Recovery factor is 75% which would give hydrocarbon gas resources of 46 TSCF

• Reservoir approximately 15 miles long and 9 miles wide

• Water depth is around 475 feet

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Natuna East location

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Natuna East: disposing of CO2

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Natuna East: initial development

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Natuna East: full development

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Coal bed methane (CBM)

Assessment made by Advanced Resources

International of 453 TSCF in 2003

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Indonesia CBM resources Rank Country Resources (in-place) TSCF

1 Russia 450 – 2,000

2 China 700 – 1,270

3 USA 500 – 1,500

4 Australia/New Zealand 500 – 1,000

5 Canada 360 – 460

6 Indonesia 400-453

7 Southern Africa 90-220

8 Western Europe 200

9 Ukraine 170

10 Turkey 50-110

11 India 70-90

12 Kazakhstan 40-60

13 Central/South America 50

14 Poland 20-50

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US Powder River Basin Reserves

Estimate In-place (TSCF) Recoverable (TSCF)

Recovery Factor (%)

Potential Gas Committee (2000) 24

US Geological Survey (2002) 14

ARI (2002) 61 39 64

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Powder River Basin Production build-up

0

200

400

600

800

1000

1200

1400

1600

1998 1999 2000 2001

MM

SCFD

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Powder River Basin Type well

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Canada Horseshoe Canyon Reserves

Estimate In-place (TSCF)

Recoverable (TSCF)

Recovery Factor (%)

Gas Potential Committee (2001) 139

MGV (2002) 70 13-23 19-33

Alberta Geological Survey (2004) 66

Gas Potential Committee (2005) 54 9-12 17-22

Energy Research Institute (2006) 36 10-12 28-33

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Canada Horseshoe Canyon Production build-up

0

200

400

600

800

1000

1200

1400

1600

2003 2004 2005 2006 2007 2008

MM

SCFD

Around 2,000 wells required in 2007 and 2008

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BP Migas Forecast Production build-up

0

200

400

600

800

1000

1200

1400

1600

2015 2020 2025

MM

SCFD

2015 target assuming 0.25 MMSCFD per well would require 2,000 wells in production – 400 wells per year needing ~ 20 CBM rigs. Appears low as wells decline rapidly…

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Flaring – significant in terms of supply

• Volumes need to be more clearly recognised

• Government policy to stop flaring by 2025

• 2009 estimates of 270-350 mmscfd from large number of fields

• No reporting of flared volumes by field

• May be significant in local areas but probably not in an overall supply and demand context

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Distribution of flaring