Indonesian Pertamina to invest US$ 2 billion, partly in geothermal

Alexander Richter 12 May 2009

As reported locally, Indonesian state oil and gas company PT Pertamina plans to invest US$ 2 billion to boost upstream operations. This way the company tries to beat the rising competition by investing more in the upstream sector, where competition is scarce and returns are higher.

“According to Pertamina deputy president director Omar S. Anwar, the company plans to increase its investment by 25 percent to Rp 22 trillion (US$2 billion) this year, 65 percent of which will be used to finance upstream investment projects. The company plans to double its investment budget to Rp 41 trillion by 2012, again with a focus on upstream projects.

Omar said the company would focus its operation on the upstream sector, including in the oil, gas and geothermal fields, because all the big industry players got their fortunes from their upstream operations.

He added the upstream sector offered higher returns than the downstream sector, which is more competitive, with more market players.

Pertamina’s returns from its downstream operation average between 5 and 10 percent, while returns from the upstream industry reach 50 percent.

“Our downstream operations require a lot more work, especially in infrastructure. But the returns are much lower,” Omar said. To reflect its priorities, Pertamina will allocate 60 percent of its investment plan this year and in the future for projects in the upstream sector.

They include the development of existing oil fields, covering an area of 1.2 million hectares, acquisition of oil fields from other operators, development of natural gas, and development of geothermal energy.

“Indonesia has the largest geothermal resources in the world, and this is still underdeveloped because of lack of incentives. We believe that when incentives are right, this sector will pick up, and when that happens, we will already be well-positioned,” he noted.

Pertamina, he went on, would not do all its upstream development alone. It would seek outside partners to develop its upstream businesses, joint acquisition, joint management and joint bidding on new areas, including overseas oil and gas fields.

However, Omar noted although Pertamina’s future focus would be on the upstream sector, it would continue to maintain downstream operations and keep a market share at the level of around 60 percent.

“There will be a lot of competition and tighter competition in the downstream sector, and we will continue to maintain our presence as part of our public service obligation,” he said.

Of the total investment needs, Omar said, Pertamina would seek outside financing of up to 40 percent, or Rp 8.8 trillion this year.

Pertamina Geothermal Energy owns the authorities of 15 geothermal concessions. Totally it yields the potential of 8,480 MW is equal to 4,390 MMBOE, consisting of resource 1,990 MW and reserve 6,490 MW. The utilization in such activities comprises of own operation and partnership. The first scheme covers 9 fields, the first three field combined have installed capacity of 162 MW, equal to 83.9 MMBOE. Field (4) and (5) are ready to develop, while (6) to (9) are still in exploration stages. (source: PT Pertamina Geothermal)

Source: The Jakarta Post