With Almighty of God, please let us present the performance report of upstream oil and gas business, for the period of 16 July of 2002 to 20 October 2004.

The enactment of the law No. 22/2001 give milestone of oil and gas industry in Indonesia, has given a new law foundation to improve the business environment to be more competitive and conducive, and for the investors, both foreign and domestic, while also give supports to exploration and exploitation oil and gas activities in Indonesia.

For the period of 2002 to 2004, Indonesia face many changes from the external environment such as political actions, economic challenges, also the society culture which affects the upstream oil and gas activities. The changes will not been given big problems to BPMIGAS with all the PSCs and the Energy and Mineral Resources Department that had succeed to implement their role and functions. In the 2 years, US$9 billion has been earned for national income from upstream oil and gas sector, US$11 billion for the year 2003, and expected will reach US$ 12 billion for the end of 2004.

Realizing Indonesian oil production has decreased in the last 5 years naturally, however during the period, BPMIGAS and its contractors has succeed increase the oil and gas reserves, the amount of 1 billion barrel to solve the problem. On other side, the gas production keep increasing in line with the gas reserves have been newly discovered such as Tangguh in Papua, West Natuna in Natuna sea, Donggi/Senoro in Sulawesi, South Sumatra, East Kalimantan, East Java, and others. All the oil and gas fields are still on the Plan of Development (POD) stage, marketing and some of have starts the construction.

Moreover, 46 gas sales purchase agreements has been sign during the period with US$ 53,4 billion contract value. Besides that, Indonesian LNG market is going wider with the LNG sale to the new countries like Cina (Fujian) and USA (Sempra Energy).

All the achievements during the 2 years working period above with the improvement of upstream oil and gas activities performance in Indonesia, hasn’t satisfy all the BPMIGAS and PSCs employee. We realize that we have to find the ways to overcome all the problems and the challenges, some of the are:
1. to search for more effective and efficient way to conduct its business in supervising and maintaining the upstream oil and gas business activities in a large and complex geographical areas, with the old oil field located in the remote areas which is hard because they don’t have good infrastructure with a very highly and sophisticated market competition.
2. to guarantee Government and PSCs synergy in reasionalizing technical and economical aspects and solving conflict of interests issues related to incentive items such us DMO, credit investations, tax, and cost recovery interests
3. to design and applicate more efficient and effective procurement procedures
4. to implement more manage auditors function

To solve the challages above, BPMIGAS and all the PSCs gradually will implement more accurate regulations and strategy in many sectors. Key Performance Indicator in any aspects of oil and gas upstream activities need to be implemented in order to recognize the success level of the activities. Standart Operating Procedures also need to be implemented to achieve more success.

We thank you all the employee of BPMIGAS and PSCs who had given all the contribution to develop the upstream oil and gas industry in Indonesia. Also, our highest appreciation for the good cooperations of Energy and Mineral Resources Department, Financial Department, Internal Affairs Department, Industrial and Trade Department, Educations Institution, Regional Government, the society around the operating area, pers, society self institution, and other parties that we haven’t been mentioned. We do hope that our good corporation could be increased for the next future, to strengthen the government’s efford to higher the performance and income of Indonesia from upstream oil and gas sectors for the people’s prosperity.

Rachmat Sudibjo
Chairman of BPMIGAS

BPMIGAS

BPMIGAS (Executive Agency for Upstream Oil and Gas Business Activities) was established on July 16th, 2002, under the oil and gas law no. 22/2001 and Government Regulations no. 42/2002. The main role of BPMIGAS is to supervise and control the Productions Sharing Contracts (PSCs) operating in Indonesia in doing their explorations, exploitations, and marketing activities.

PSCs

During the last 5 years, the number of PSCs is increasing, following the more working area contracts signed. In November 2004, there are 119 Contractors Productions Sharing block where 102 of them are PSCs, 17 Joint Operating Body/Joint Operating Assistant, of which the number of new working area contracts that had been signed in the last 5 years are : year of 2000 (1 WKP), 2001 (6 WKP), 2002 (2 WKP), 2003 (15 WKP), 2004 (1 WKP).

Oil and Gas Potential in Indonesia

There are 60 hydrocarbon basins where 22 of them haven’t been exploited while 38 basins have been exploited (15 of them has produced, 11 have not producted, and 12 unproved). The Oil reserve in Indonesia decreased naturally with 8,3 billion barrel oil reserve (4,3 billion barrel proven and 4 billion barrel potential) that produced for 20 years of time. However, the amount of Indonesia gas reserves, proven and potential, increased align with new fields discovery in the last 2 years. The gas reserves reached 185,6 trillion cubic feet (95,1 TCF proven and 90,5 TCF potential) or could be produced for 64 years.

SEISMIC AND DRILLING ACTIVITIES

In 2002, 13,170 km 2D seismic activities, 1,896 km 3D seismic activities. For the year 2003, 15,854 km 2D sesmic activities and 2,877 km 3D. In 2004 (uptill August 2004), 8,422 km 2D and 5,459 km 3D.

While exploration and exploitation drillings are relatively fluctuative under the target estimated. For the year 2002, exploration target reach 117 well (75 actual). In 2003, 96 wells target (54 actual), and in 2004, there are 80 wells target (actual 36). Meanwhile, the exploited target for the year 2002 is 1241 wells (actual 837) in 2003, 938 wells (815 actual) target, and in 2004, 547 wells (328 actual) target.

NEW FIELDS DISCOVERY

During the last 2 years, exploration activities are increased to solve the oil and gas lack of supplies also to anticipate the market demands. The new fields discoveries during the last 5 years are rising, especially the gas fields. However, the success ratio of wildcat well exploration is fluctuating in the last two years. Success ration of 2002 is 51%, 2003 is 34% and in 2004 (uptill September) is 43%. That fluctuation is caused by many problems pursue exploration activities progress such as the decreasing of new investment, agraria problem, less developed infrastucture in potential area, etc. Nevertheless, in 2003, an 1 billion barrels has been discovered in East Kalimantan offshore, Cepu, and East Java offshore, also 6,2 TCF in 14 new gas fields in 2004, located in South Sumatera, West Madura offshore, and east Kalimantan.

FIELDS DEVELOPMENT

During the period of 2002 – 2004, 17 oil fields are developed with 226 million barrel reserves, US$ 539 million investment value for the 5-20 years contract period. Whereas the gas (and oil/condensat) fields development in 18 fields with 26 billion cubic feet with US$ 12,5 billion value for the 8-25 period. The oil and gas field mentioned will start producing in 2004 and 2006.

Oil and Gas Production

More oil production comes from mature fields where are going ton decrease naturally, that reached 15% from the total production. Nonetheless, with the existing field optimal efforts by EOR, Steam Flood, and new fields development, the decreasing still be able to be sustained to 6,7% per year. The Country’s income expenditure budget (APBN) of 2004 oil and gas produce target, reach 1 million 72 thousand barrel/day or decreasing compare with the previous years. In order that, exploration activities in the new fields in East Kalimantan, South Sumatera, Jambi, Riau and other area has been accomplished.
On the other hand, gas reserves and productions are rising in the last 2 years. With the ongoing and new Plan of Development, the gas production reach 7,8 billion cubic feet per day compare with 6,3 billion cubic feet in 2001. For the next futures, oil and gas field new discovered will increase the gas production to 8,3 BCFD in 2008.

INVESTMENT AND COUNTRY’s INCOME

The oil and gas expenditure Indonesia is rising align with exploration and exploitation activities and the new discovered of oil and gas fields. In 2002, the expenditure reach US$ 5 billion and for the last year of 2004, estimated will reach 7 billion US$. The biggest expend is for production operation activities, reach 60% from the total expenditure.

The cost recovery condition is also increasing, align with the expenditure above. In 2002, total cost recovery oil and gas is US$ 6,2/BOE, in 2003 about 6,6 US$/BOE, and in 2004 (uptill June status) about 7,17 US$/BOE.

While the country’s income is significantly increasing where in 2001 reach US$ 10 billion, in 2002 is slidely decreasing (US$ 9 billion) and increasing in 2003 (US$ 11,5 billion) and in 2004 (US$ 12 billion). The increasing income is the result of the increasing of oil and gas production in the new fields and as the effects of the rising oil price in world.

SIGNING OF AGREEMENT

During 2,5 years on going period ( 16 July 2002 – 20 October 2004), the agreements has been sign are 46 agreement for 16,7 gas volume, with US$ 53,4 billion contract value and 5,8 million barrels new condensat contracts, with the value of US$ 168 million. Indonesian LNG market is going wider with the success of contract signing with LNG Fujian terminal, China, Posco, and Korea SK Power, and USA Sempra Energy.

COUNTRY’S ASSET MANAGEMENT

Upstream oil and gas asset is the country’s asset that has to be managed well. BPMIGAS as the Government representative, has the roles to do the building up and supervising them which most of them are operated by the PSCs in their working area. Meanwhile, the asset value now is US$ 19,308 billions contains of: US$ 18,704 billion capital property; US$ 1,979 billion inventory property, and US$ 0,601 billion stock material.

HUMAN RESOURCES

In substance, all the employees of BPMIGAS are experient worker and have educational background concordant with their roles and duties. Most of the employees are from Pertamina MPS (Management Production Sharing) Directory, Energy and Mineral Resources Department and PSCs contractors. Since 2002, there are 361 BPMIGAS employees.

THE ENVIRONMENT AND SAFETY WORK PROTECTION

BPMIGAS and PSCs Contractors are placing the environment and safety working protection aspects as the main priority in running its responsibilities. Many kind of environment protection has been implemented since the early of exploration until exploitation activities conducted in the oil and gas field in Indonesia. The amount of Amdal document, ISO 14001, SOP, and environment sustainable quality handling has been accomplished during 2002-2004. Alike with many environment pollution cases which is caused by other activities but close to oil and gas operation areas are controlled substantially. From 2002 uptill now, the performance of BPMIGAS and PSCs Contrators employee safety work, is satisfactory with low working accident.

COMMUNITY DEVELOPMENT

The community development is unseperated form the oil and gas exploration and exploitation activities in Indonesia. In the 2 years, 2002 till now, many kind of community program has been conducted focusing in Community Economic, Culture and Education, Public health, public social facilities and environment.

PSCs CONTRACTORS

In the last 5 years, the number of PSCs Contractors is increasing align with the number of the new Working Area Contracts have been signed by PSCs’ Contractors (KKKS). In 2000, the number of KKKS and Technical Contract Assistance (TAC) reached 120 blok. Meanwhile, base on the new law stated that BPMIGAS role and responsibility is focusing in supervising and controlling the KKKS excluding TAC. In conclusion, the number of KKKS in 2002 are 109 blocks, 2003 : 124 blocks, and 2004 : 119 blocks. The government efforts c.q. Department of Energy and Mineral Resources in encouraging new investments is improving the investment climate in Indonesia in the periode of 2002-2004. The number of new block contract has been sign in the last 5 years are: the year 2000 (1 WKP), 2001 (6 WKP), 2002 (2WKP), 2003 (15WKP), & 2004 (1WKP).

Basins and Hydrocarbon Reserve

Hydrocarbon Basins

At this time, Indonesia has 60 hydrocarbon basins, where 22 of them has not been explored and 38 basins has been explored. From the 38 basins, 15 of them has been produced, 11 non-produced, and 12 unproven reserve. Most of the basins located in the western part of Indonesia, but the potential and unproven ones majorly located in the eastern part of Indonesia.

Indonesia Oil and Gas Reserve

Indonesia oil and gas reserve is naturally decreasing, with 8,3 billion barrel reserve consist of 4,3 billion barrel proven reserves, and 4 billion barrel potential. The reserves could be produced in 20 years. Most of the reserves spreated in the wetern part of Indonesia, especially in West Java and Sumatera. While the Eastern part of Indonesia has not been discovered new reserve, especially in the remote and deepwater area.

Meanwhile, number of Indonesian gas reserve, proven and potential is increasing. In 2004, gas reserve is 185,6 trillion cubic feet that is 95,1 TCF proven reserves, and 90,5 trillion cubic feet potential, able to be produced in 64 years. In parallel with the oil reserve, the gas reserve is concentrated in the Western part of Indonesia, so that for the future, the exploration activities needs to be emphasized in the eastern part of Indonesia.

SEISMIC AND DRILLING ACTIVITIES

In 2002, 13,170 km 2D seismic activities, 1,896 km 3D seismic activities. For the year 2003, 15,854 km 2D sesmic activities and 2,877 km 3D. In 2004 (uptill August 2004), 8,422 km 2D and 5,459 km 3D.

The wildcat exploration and delineation is stable, although generally is below the target estimated before. In 2002, exploration target is 117 wildcat, but the success one reached 75 wells. In 2003, drilling target is 96 wells and actual 54 wells and in 2004, targeted 80 wells and actual 36 wells. This condition is not different with the previous one with ration of 60%.

The well drilling development is similar with the condition in 2002, where the wells drilling target is 1241 wells and actuated 837 wells, in 2004 targeted 938 wells and actuated 815 wells, also in 2004 targeted 547 wells actuated 328 wells (updated July 2004).

NEW RESERVES DISCOVERY

In the last two years, the exploration activities has been enhanced to solve the lack of oil and gas supply also to anticipate the domestic and international market higher demand. The new discoveries in the last 5 years is fluctuate, inline with the social and political condition in Indonesia also the investment value that is slidley decreased.

However, during the period of 2002 and now, the oil and gas reserves is relatively stable that is 2100 MMBOE, even though the exploration wildcat success ratio is fluctuate in the last two years.

The success ration in 2002 is 51%, 2003 (34%) and 2004 (43%). The fluctuate ration is caused by some problems on exploration activities such as : the decreasing of new investment, litigation, lack of infrastructure in the potential area, and others.

Nevertheless, in 2003, BPMIGAS and KKKS has discovered 1 billion barrel oil reserves in the offshore of East Kalimantan, Cepu, East Java, also gas reserve, 6,2 TCF spreaded in South Sumatera, offshore West Madura, and East Kalimantan.

DEVELOPMENT PLAN
In terms of increasing Indonesia oil and gas production, BPMIGAS and KKKS during the period of 2002-2004, has succeed in planning the 17 new oil fields, 18 gas fields.
The 17 oil fields have been developed, has 226 million barrel reserves with the invesment value of 539 million US$, for the period 5 – 20 years.

While the 18 gas field (and oil/condensat) development, has 26 billion cubic feet gas reserves with the investment value of 12,5 billion US$, for the contract period 8-25 years.

Production of Oil and Gas

In the seventies and nineties era, Indonesia was one of the country had massive oil production. The oil production peak happened in 1977 with the number of production of 1,60 million barrel per day and in 1955 was 1,62 million barrel per day. In that period, the production is naturally decreasing, with 5 to 15 % each year from the total production. Most of the Indonesian oil production is coming from the mature oil field. Since the oil price crisis in 1998, the total expense was decreasing and the decreasing of oil was production was followed.

Currently, the country’s expenditure & revenue budget targeted 1,072 million barrel/day. BPMIGAS and KKKS continuously maintain the production in order to reach the target, also explore the new fields such as in East Kalimantan, Sout Sumatera, Jambi, Riau, and other areas.

On the other hand the oil production, both the gas reserve and production is increasing significantly in the last two years. BPMIGAS and KKKS continuously explores and develop new gas field. Estimated with the on going status POD, the gas production will reach 7,8 billion cubic feed per day in 2004. The gas production peak will be in 2008, with volume of 8,3 billion cubic feet per day.

THE GOVERNMENT EXPENDITURE AND REVENUE

The oil and gas expenditure is higher in parallel with the increasing the exploration and exploitation activities, and also the new field development. In 2002, the expenditure reach 5 billion US$ and by the end of 2004, approximately could reach 7 billion US$. The highest expenditure is the production operating cost, which is 55% of the total expenditure. Other expenditure comes from 35% for exploration and development, and 10% from administration.

The cost recovery is also higher. In 2002, the total cost recovery is 6,2 US$/BOE, 2003 is 6,6 US$/BOE, and in 2004 (last updated : June) is 7,17 US$/BOE.

However, the Government revenue from the upstream oil and gas sector is increasing significantly. In 2001, the revenue is 10 billion US$, slidely decreased in 2002 which is 9 billion US$. In 2003, it dramatically increasing that is 11,5 billion US$, estimated will be 12 billion US$. The increasing revenue as the result of the new oil and gas field discoveries and also the world oil price which is also higher.

AGREEMENT SIGN

In 2,5 years (July 16, 2002 – October 20, 2004), the number agreement has been signed is 46 agreement with 16,7 TCF of gas volume, value 53,4 billion US$, also condensate contract from Arun and Bontang, 5,8 million barrel, value 168 million US$. The Indonesian LNG market is broaden with the success of signing of gas sales contract with Fujian, China, Posco & SK Power Korea, Sempra Energy USA LNG terminal.

ASSET MANAGEMENT

The asset of upstream oil and gas business activities, has to be managed properly. BPMIGAS as representative of the Government of Indonesia has duties to manage and supervise the country’s assed that majority operated by KKKS in their working area. The asset value 19,308 billion US$, contents of :

1. Capital : 18,704 billion US$
2. Inventory : 1,979 billion US$
3. Material stock : 0,601 billion US$

HUMAN RESOURCE DEPARTMENT

The Human Resource Department is an important factor for BPMIGAS in its efforts to improved its performance. In order that, activities in organization restructuring and training, has been implemented nationally and internationally.

Basically, the employee of BPMIGAS has experience and educational background related with their duties. Majority, they are hiring from Pertamina Directory MPS (Management Production Shairng), Department of Energy and Mineral Resources) and KKKS.
Since 2002, the number of employee is 361 employees, 300 of them is graduated and 61 non graduated employees.

The improvement of BPMIGAS HR performance system applied in the performance evaluation system that are : technical and nontechnical pre-employee evaluation, probation period (3 months), and annual evaluation. All of the employee get the shame opportunity to develop their career. The HR management regulations is underlined to the development oriented with the accomplishment of the performance target stated, utilizing suit with the major capable to, and are efforts to proactive employees, also given flexibility to improve.

PROTECTION OF SAFETY WORK AND ENVIRONMENT

BPMIGAS and KKKS always put the safety work and environment aspects as first priority in implementing its roles. Many kind or environment protection and safety work program has been applied since the early stage of exploration and exploitation. For the year of 2002 -2004, the number of activities applied by BPMIGAS and KKKS :
1. Management and environment supervising efforts : 123 (studi) + 87 (KKKS)
2. Amdal Dokument : 7 (studi) + 6 (KKKS)
3. Amdal Revision : 6 (studi) + 6 (KKKS)
4. Proper Sosialization (Company Performance Improvement Evaluation Program)
5. ISO 14001 certified program, Air Emission handling, Remedy/environment improvement program, environment evaluation handling and sludge accomplishment.

The number of working accident as follow:
1. Fatal (died) : 1 case
2. Accident caused working day off : 6 cases
3. Accident without working day lost : 57 cases
4. First assistance : 247 cases
5. Operating facility lost (fire accident, etc.) : 7 cases
6. Others

COMMUNITY DEVELOPMENT

The community development (CD) is unseparated part from exploration and exploitation oil and gas activities in Indonesia. The conduction of CD programs are aimed to reduce the negative impacts of the exploration and exploitation activities, also to assist the local government in its program to develop its region and sosiciety. In the last 2 years, many kind of CD program has been implemented focused in:

SECTOR ACTIVITIES
Economy
Assist the Government to develop its community in efforts to improve its economy
Education and Cultural Schoolerships award, assist the facility of education, sports, and cultural activities
Health Support the public health improvement efforts
Social and public facilities Support the social facilities development in the operating area
Environment Support the environment care program improvement

FUTURE PROGRAM

The challenges are :
1. Implying more effective and efficient of supervising and managing the activities in an area which is geographically mature and remote, lack of infrastructure, also in competitive market.
2. Synergize the BPMIGAS and KKKS in terms of rationalization of technical and economical aspects also solving the conflict of interest issue related with the incentive such as DMO, credit investment, tax, and cost recovery interest.
3. Assign and implement more effective and efficient procurement procedures.
4. Apply tighter auditing functions.

In order to answers those challenges, BPMIGAS and KKKS gradually apply more appropriate regulations and strategy in many sectors. The Key Performance Indicator in many aspects of oil and gas business activities need to be implemented to see the performance success level. The Standart Operating Procedures need to be improved to escalate the success. In addition, new fields projects need to be developed to reach the oil and gas development target of Indonesia.

Nevertheless, since 2003 to 2009, some development projects dominated by gas projects, which is escalate from year to year. Meanwhile, the oil development project is relatively not fluctuating.

Besides those efforts, other activities in order to increase the exploration and exploitation of oil and gas activities are:

1. Provide more transparent and competitive business climate to attract the investors.
2. Enhance the LNG market globally
3. Fulfill the domestic gas demand that is higher nowadays.

4. Increase the local content in the asset procurement competitively
5 Shorten all exploration and exploitation approval process
6. Higher the competence of the employees of Indonesian oil and gas

BPMIGAS

BPMIGAS (Executive Agency for Upstream Oil and Gas Business Activities), established in Juli 16th, 2002.

LEGAL FOUNDATIONS

1. 1945 Constitution, Article 33, Paragraphs 2 and 3
2. Law. No. 22/2001 on oil and natural gas
3. Government Regulations No. 42.2002 on BPMIGAS

In order to create the conduction of upstream oil and gas business activities more competitive, efficient, and transparent business climate for the oil and gas investor, the Government of Republic of Indonesia ratified new law of oil and gas.

ROLES

To supervise and control the upstream Business Activities so that the extraction of the state-owned oil and gas natural resources may have maximum benefit and income to the state for the greatest prosperity of the people.

FUNCTIONS

• Provide recommendation for the Minister concerning its policy in preparing and offering Operational Areas and Cooperation Contracts
• Supervise and control operations of oil and gas exploration and production contractors
• Carry out the signing of joint operation contracts
• Evaluate and prepare the Plan of Development
• Approve contractor’s work program and budget
• Monitor and report to the Minister concerning the implementation of operation of cooperation contracts
• Appoint sellers of the government share of oil and/or natural gas

ORGANIZATION
1. The Executive Agency consists of leaderships, experts, technical employees, and non-technical employees.
2. The Chairman is determined and undetermined by the President of Republic of Indonesia after consulting with the Parliament of Republic of Indonesia (DPR).
3. Report to the President in conducting its duties.

DUTIES OF EACH DEPARTMENT

PLANNING DEPARTMENT

Assits the Chairman of BPMIGAS in the implementation of policies on planning, fostering, monitoring, and control of production sharing-contract execution, so as to increase additional production and to optimize national revenue.

OPERATION DEPARTMENT

Assists the Chairman in the implementation of policies on planning, monitoring, and control of upstream oil and gas business activities that cover production, marine, information technology, equipment inspection, production and construction facilities, as well as gas and LNG processing facilities.

FINANCE – ECONOMIC AND MARKETING DEPARTMENT

Assists the Chairman in the implementation of policies on financial and marketing planning, administration, monitoring, control, and fostering in an efficient and effective manner for short term as well as long term, so as to optimize national revenue.

GENERAL AFFAIRS

Assists the Chairman in the impelementation of policies of planning, administration, monitoring, ensuring the proven operation of legal, human resources development, financial, methods and procedures, IT and office services, external relations as well as preparing work program and the budget of the agency through optimization of the organization and work forced as well procurement and management of contractor’s asset.

BPMIGAS LOGO

EXECUTIVE AGENCY
FOR UPSTREAM OIL AND GAS BUSINESS ACTIVITIES

BPMIGAS has the responsibility for overseeing the development of Indonesia’s key energy resources of Oil & Gas.

BPMIGAS’s executive role in supervising and controlling upstream Oil and Gas activities is implicit in its name “Badan Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi” and it is these key elements … Oil and Gas, the foundation of the nation’s energy security and some of its export income, that form the basis for the
proposed corporate symbol.

The symbol contains a red gas bubble ascending, and a green oil drop descending, captured at the moment of release so that together they create the shape of a number eight, a highly auspicious number in Feng Shui.

The name is presented in a lower case font to characterize the company as friendly, accessible, flexible and modern in its outlook. BPMIGAS is an enabler as well as a regulator and this modern approach highlights the company’s role as partner and catalyst.

To distinguish the Executive Committee and the resources it regulates, the name is presented in different shades of grey, clearly indicating the two parts of the equation.

Overall the corporate logo is clean and contemporary in design, reflects a highly professional organization, and communicates a positive future for a vital national resource.