Christine L. Wowor clwowor@gmail.com Investment Management of Petroleum Fund in Indonesia on Exploration and EIOR with System Dynamic Model Christine L. Wowor clwowor@gmail.com

Motivation Challenges in Indonesia energy security: Highly dependent on fossil fuels Reserves replacement lower than produced volume Indonesia mature fields is less than 1% world reserves Decreasing trend of exploration investment Draft Revision of Oil and Gas Law No. 22/2001 suggested an allocation of Petroleum Fund

Research Objectives To assist the Government of Indonesia measuring the benefit of investing the allocated Petroleum Fund in Oil and Gas exploration and EIOR (Enhanced and Improved Oil Recovery) towards : Indonesia oil and gas reserves and production Revenue of GoI and Growth of the allocated Petroleum Fund Potential development of supporting industries This research can be used to model the alternative management of petroleum fund in other countries 43 petroleum fund out of 123 sovereign funds

Research Scope Indonesia 1/1/ 2016 Proved Oil and Gas Reserves and Identified Resources with 5% of GoI revenue allocated as Petroleum Fund The Allocated Petroleum Fund in 2019-2029 period will be invested in Exploration and EIOR activities in Indonesia Indonesia third generation of PSC as the references for commercial elements representing exploration in frontier eastern area and EIOR activities in western area Utilization of system dynamic model that represents relationship among work programs and commercial components.

System Dynamics in World Energy Model Roger Naill on Hubbert King Theory Source: http://www.hubbertpeak.com/hubbert/SystemDynamicsEnergyModeling/ Intellectual Lineage of System Dynamic Energy Model Source: http://www.hubbertpeak.com/hubbert/SystemDynamicsEnergyModeling/ c

Indonesia E&P Business Process Current Business Process Proposed Business Process

Indonesia Exploration Potential Source: SKK Migas Eastern Indonesia Portfolio – Wood Mackenzie Seismic Cost in Eastern Indonesia Economical volumes requires 1.25 TCF finding. Correlatably $30/MMCFD seismic cost

Indonesia EIOR Potential Indonesia Oil in Place Volume 1/1/2014 Reserves Source: SKK Migas EIOR Distribution Source: SKK Migas EIOR campaign in 15 fields in Indonesia indicated 0.4 – 4.6 BBOE EIOR potential but economic screening indicated $70/BBL oil price environment to make it economical project and 13 of 15 fields are with less than 5 years expiring PSC. Petroleum Fund can be used to cover 30% of OPEX (USD $4/BO EIOR cost) by funding EIOR pilot project or developing domestic chemical industry Source: SKK Migas

Indonesia E&P System Dynamic Model Stock : Proved EUR Cumulative Production Exp Prod Add EIOR Prod Add Flow: Annual Production Exploration Proved EUR Add EIOR Proved EUR Add Auxiliaries: Existing Proved Exploration and EIOR Prod Add Government Revenue Petroleum Fund Investment split on Exploration and EIOR Exploration Finding Cost & Lag Time EIOR Field Trial Cost and Lag Time Constant: Gas Price Tax

Scenario and Results Incremental exploration and EIOR incremental production profiles have considered actual field performances 100% EIOR investment bringing 2.2 BBOE of additional production from existing proved OOIP and extend up to 30 years production. 100% Exploration investment will bring 266 TCF proved gas development escalating gas production 7 times current production rate

Analysis Results Allocating 5% of GoI revenue from 1/1/2016 Proved Oil and Gas Production would collect 11.3 billion USD of NPV Petroleum Fund Application of signing bonus on the awarded exploration area and DMO in the 3rd year of EIOR production will gain back the invested Petroleum Fund in 2019 - 2029 The investment will extended stream of revenue from improved oil and gas production and growth to the original value of Petroleum Fund up to 50 – 100% original net present value

Recommendation 25% Exploration and 75% EIOR scenarios considered the best option: Allocate enough investment on Eastern Indonesia exploration and prove 61 TCF of gas reserves Produce 1.6 BBOE incremental reserves from existing proved oil production and extending the proved oil production by 25 years Contribute 14% higher GoI from E&P business and create 50% growth of the allocated petroleum fund Multiplier effect of domestic chemical industry development, seismic activities and developing the economy in eastern Indonesia

Further Study Include the renewable energy and gas infrastructure development as part of Petroleum Fund investment options Measure the impact of the recently introduced gross split contract system

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