PETROLEUM REPORT INDONESIA 2005-2006

Executive Summary

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Table of Contents Petroleum Report Indonesia 2005-2005

In 2005 Indonesia ranked twentieth among world oil producers, with approximately 1.4 percent of the world's daily production. At an unofficial 1.06 million barrels of oil per day (b/d) by the end of 2005, Indonesia's production of crude oil and condensate continued the multi-year trend of gradual decline from 1.09 million b/d in 2004, 1.15 million b/d in 2003, and 1.25 million b/d in 2002. Indonesia's oil reserves are approximately 9.7 billion barrels.

Indonesia ranks eighth in world gas production, with proven and potential reserves of 170-180 trillion cubic feet (TCF). Indonesia produced 3.16 TCF of gas in 2003, declining to about 3.03 TCF in 2004. Indonesia was the world's largest exporter of liquefied natural gas (LNG) at 25.2 million metric tons (MT) in 2004, the last year for which official statistics were available. Its 18.8 percent share of the world market is declining under pressure from new production in Qatar, Australia and Russia. Unofficial statistics and press reports suggest that Qatar overtook Indonesia as the world's largest exporter in April 2006.

Despite the gradual decline in oil production, the industry remains a key sector in Indonesia's economy that generates strong cash flows. In 2005, oil and gas contributed $19.2 billion or 22 percent of total export earnings and about 24 percent of government budget revenue. Though significant, this contrasts starkly with 1990, when the oil and gas sector contributed 43% of export earnings and 45% of government revenues.

The government reduced its assumption for crude oil production in the 2006 budget to 1.05 million b/d. That budget also assumes an exchange rate of Rp 9,900/US$ and an oil price of $57/barrel. Actual Indonesian crude oil prices averaged $65.01 during the first five months of 2006, with a high of $70.31 during April 2006.

As a symbol of its commitment to sound macroeconomic policy as the basis for sustainable growth and economic development, the government reduced fuel subsidies across the board first in March 2005 and again in October 2005. Nonetheless high global oil prices raised the actual 2005 fuel subsidy to Rp 76.5 trillion.

Upstream and downstream oil and gas deregulation continues as required by Law 22/2001, which replaced the 1960 Oil and Gas Law and the Law for Pertamina 8/1971. The new law mandated the end of Pertamina's monopoly over downstream oil distribution and marketing of fuel products and shifted regulatory functions to the central government. The government issued the upstream and downstream implementing regulations in 2004.

The new law created two new governmental bodies: the Upstream Executive Body (BPMIGAS) that takes over Pertamina's upstream functions and the Downstream Regulatory Body (BPH MIGAS) that supervises downstream operations. BP Migas commenced operations in July 2002, taking over Pertamina's upstream regulatory functions and management of oil and gas contractors. BPH MIGAS started work in December 2002.

In 2004 - 2005

• The dollar value of oil and gas exports increased to $19.2 billion in 2005 from $17.6 billion in 2004, compared with $15.2 billion in 2003. 
• Oil and gas imports also increased to 17.4 billion in 2005 from $12.1 billion in 2004, compared with $8.4 billion in 2003. 
• The government issued implementing Regulations 35 and 36 in 2004 for the upstream and downstream oil and gas sectors. 
• In November 2005, Shell opened Indonesia's first private retail fuel station in Tangerang, West Java.

Crude Oil

Production and Reserves

2000 – 2004

2004

Reserves              : 8.6 billion barrels
Production            : 1.09 million b/d
Export revenue    : $6.2 billion

Indonesia’s crude oil production continued to decline in 2005 to an unofficial average of 1.06 million b/d. In 2004, Indonesia produced an average of 1.09 million b/d, down 7.8 percent over the previous year’s level of 1.15 million b/d.  Falling output by most of the country’s major producers accounted for the 17,500 b/d production drop in 2004.  Foreign PSCs accounted for 88% of Indonesia's crude output in 2004.

Petroleum companies increased their exploration spending by 4.7 percent in 2004 to $5.56 billion from $5.31billion in 2003. The number of new exploration and appraisal wells drilled in 2004 was up slightly to 36 wells from 33 in 2003, but still a precipitous decline from the 145 wells drilled in 1998.

ChevronTexaco acquired Unocal in August 2005 after CNOOC decided to withdraw its takeover bid. The company shortened its corporate name to Chevron and extended it to all its geographic units, including its Indonesian subsidiaries, the former Caltex and Unocal entities.

On March 15, 2006 ExxonMobil and Pertamina signed an agreement concluding negotiations on the joint operating agreement for the Cepu block in East Java.  Officials from both companies say oil and gas could start flowing from the block in 2008.

The GOI awarded 9 new production sharing contracts in 2005, compared with 16 in 2004, and 15 in 2003, down from a record 29 contracts in 1997.  Major international and U.S. companies were largely absent from the bidding on these new exploration blocks.  The government had planned to award a new round of tenders in December 2005, but had not yet done so when this report went to press in late March 2006.

Indonesian crude producers profited from high world oil prices, which averaged $53.10 per barrel in 2005 for SLC, significantly above the 2004 average price of $36.60 per barrel and the 2003 price of $18.00.  As a result of OPEC decisions to increase oil production, Indonesia’s quota increased from 1,270 mbpd in November 2003 to 1,451 mbpd in July 2005.  Indonesia did not benefit from OPEC’s quota increases since it has produced well under its quota throughout this period.

Indonesia’s major crude oil customers (in rank order) were Japan, South Korea, China, Australia and the United States.  Indonesia’s overseas markets generally showed a decline in sales in 2004 with the exception of South Korea, USA and Taiwan. 
                                                                                                     
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