SPE-194786-MS

Forecasting and Modelling the Oil and Gas Reserves in Indonesia Using the
Creaming Curve and Linear Regression Analysis

Ahmad Abdul Azizurrofi and Rikky Rahmat Firdaus, SKK Migas

Copyright 2019, Society of Petroleum Engineers

This paper was prepared for presentation at the SPE Middle East Oil and Gas Show and Conference held in Manama, Bahrain, 18-21 March 2019.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents
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ABSTRACT
In early 2016, oil price has fallen to its lowest level (30.32 US$/bbl) over the last 12 years. Since then,
petroleum exploration and exploitation activities are decreasing worldwide due to high production cost and
low oil prices.
As of December 2017, there were 435 projects approved by the government of Indonesia, which is
expected to maintain the national energy supply and to increase national income from oil and gas industry.
This paper will evaluate and analyze the oil and gas reserves per project to help Contractors to find the area in
Indonesia that has the highest trend of oil and gas reserves per project so that they can produce big revenue.
The purpose of this paper is, to divide the geographical areas of Indonesia into 5 different areas (Sumatera,
Java, Kalimantan, Sulawesi and Papua). Then, to collect the data that related to projects and oil and gas
discoveries and the trend of oil and gas discoveries per project are calculated and analyzed by using the
creaming curve method, the result will be distributed to those aforementioned areas and finally define the
area that has the highest and the lowest number (trend) of oil and gas discoveries per project.
Based on the analysis of 435 Projects in Indonesia, Sulawesi is estimated to have the highest amount of oil
and gas reserves by 111.24 MMBOE per project which means that these areas become the most interesting
area for Contractors to produce profitable projects, meanwhile Sumatera is estimated to have the lowest
amount of oil and gas reserves by 7.19 MMBOE per project which means that these areas are becoming
the most mature area in Indonesia.
Finally, this paper is expected to provide contractors a quick look at oil and gas industry in Indonesia
especially the contractors who are looking for the giant oil and gas reserves and also help them create their
petroleum exploration and exploitation strategy in Indonesia by considering on this information which will
provide benefits for both government and contractor.

INTRODUCTION
In early 2016, oil price has fallen to its lowest level (43.29 US$/bbl., average Oil Price) over the last
12 years. Since then, petroleum exploration and exploitation activities are decreasing worldwide due to
high production cost and low oil prices. The oil and gas company must make extra cost saving and keep
2 SPE-194786-MS

searching to find new giant oil and gas fields (reserves) that will produce positif revenue for the projects
and economically acceptable for the contractors.
As of December 2017, there were 435 projects approved by the government of Indonesia, which is
expected to maintain the national energy supply and to increase national income from oil and gas industry.
This paper will evaluate and analyze the oil and gas reserves per project to help Contractors to find the area in
Indonesia that has the highest trend of oil and gas reserves per project so that they can produce big revenue.
Here, this paper will also provide an insight about the development of oil and gas industry in Indonesia
during the falling of oil price and show a distribution map of "the biggest to the lowest" estimated oil and
gas reserves in Indonesia. This map will also inform the contractors which area (fields) that categorized
as "mature and un-mature oil field (area)". Finally, this paper will help contractor minimize the risk of
exploration and exploitation and create their portfolio and strategy to invest in oil and gas industry in
Indonesia by using these information.

BACKGROUND OF OIL AND GAS INDUSTRY IN INDONESIA

Oil and Gas Industry in Indonesia
Based on Presidential Regulation Number 22 of 2001 and Number 9 of 2013, the Government of the
Republic of Indonesia formed an institution called Special Task Force for Upstream Oil and Gas Business
Activities (SKK Migas). The Institution is assigned to manage upstream oil and gas business activities
under Cooperation Contract. One of the functions of SKK Migas is to give approval of proposed Plan of
Development (POD) documents based on technical and economic evaluations from both SKK Migas and
Contractor.

Production Sharing Contract

Since 1966, the Production Sharing Contract (PSC) concept has been the basic form of cooperation with
foreign oil companies working in petroleum exploration and production in Indonesia. Under the PSC regime,
the period of contract shall not exceed 30 years. The exploration period is six years and is included in the 30-
year period. The exploration period can be extended once but cannot exceed four years, which will further
proceed to production phase, if there is sufficient hydrocarbon. If the contractor fails to produce hydrocarbon
commercially within ten years, the working area shall be returned to the Government of Indonesia.
Here is the general flow diagram of PSC in Indonesia:

Figure 1—Production Sharing Contract Flow Diagram

The duration of the PSC is 30 years from the date of the contract signed and may be extended for 20
years. Contract extensions can be proposed to the Minister of Energy and Mineral Resources through SKK
Migas within two to ten years before the original contract expiry date. SKK Migas will further evaluate the
proposal and provide recommendations for the ministry's approval.
The following table shows oil and gas exploration and exploitation activities within 30 years under PSC.
SPE-194786-MS 3

Table 1—Activities during Exploration and Exploitation Phases of a PSC

Notes:
Exploration
1. 6 (six) years with a 4 (four) years extension upon Contractor's request after the fulfillment of the
minimum requirements.
2. Should the Contractor find no commercial discovery during the ten-year exploration period, the PSC
shall be terminated.
3. During the first three years of the exploration period, Contractor shall perform committed work
programs at the estimated amount as set out in the contract. In the event Contractor terminates it before
completing the work programs, the outstanding commitments shall be payable to the Government
through SKK Migas.
Exploitation
Upon approval of the first Plan of Development (POD), the Contractor shall commence the development
of the field no later than five years following the end of the exploration phase (Yuwono, 2008).
Under PSC fiscal regime, in order to enable the project to be economically accepted, the Contractors
may alternate the terms and conditions of the PSC, i.e., change in the percentage of First Tranche Petroleum
(FTP) shares and split ratio (between Contractor and Government), request for incentives (Investment Credit
and Interest Cost Recovery), Domestic Market Obligation holiday and depreciation acceleration.
The following diagram illustrates the flow of a PSC.
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Figure 2—Production Sharing Contract (PSC) Diagram

In general, oil and gas price highly depends on the world market. As the market price is very volatile,
the Contractors (both oil and gas) must properly manage their costs, risks and technology. Based on that, in
August 2016, Minister of Energy and Mineral Resources attempted to create a new paradigm of upstream
oil and gas management with the Government Regulation Number 52 of 2017 on Gross Split Production
Sharing Contracts. This regulation set out a new fiscal and economic structure for PSCs based on dividing
gross production between the state and Contractors, without a mechanism for the PSC Contractor to recover
operating costs.
The purpose of the establishment of a Gross Split PSC include:
a. Encourage robust and expeditious exploration and exploitation efforts.
b. Encourage oil and gas contractors to be more efficient and perceptive to the price volatility.
c. Encourage the Contractors to be more accountable in managing and controlling their expenditures.

Figure 3—Gross Split PSC Diagram

As for the benefits that are expected with the implementation of Gross Split PSC, they include:
SPE-194786-MS 5

a. The concept of "Share Pain - Share Gain"

b. Business risks mitigated through incentive split
c. Shorter business processes: it is expected the Contractor will save around two to three years on the
procurement process and achieve early production
d. Decrease cycle time and cost of first gas and oil
e. Enhanced involvement of local contents to achieve greater split.
Here are the general terms and conditions in Gross Split PSC based on regulation of the Minister of
energy and Mineral resources Number 52 of 2017.

Table 2—Base Split on Gross Split PSC

Table 3—Type of Incentives

In 2016, there are 85 exploitation CAs and 195 exploration CAs, either conventional or unconventional.
Additionally, the Government approved the termination of 34 PSCs and another 33 PSCs were undergoing
termination process, resulting in a total of 280 PSCs at the end of 2016 (SKK Migas, 2016).
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Figure 4—Distributions of Contract Areas in 2016 (SKK Migas, 2016)

Information of change throughout 2016 (SKK Migas, 2016):

1. There are 1 conventional exploration CA transfer in management and 1 unconventional exploration
CA were signed PSC on 25 May 2016.
2. Semai IV, Halmahera II, Cendrawasih Bay II, Cendrawasih Bay III, Cendrawasih VII, Bengkulu I-
Mentawai, and Sekayu CA under termination process.
3. Sibaru, SW Bird's Head, CBM Sekayu, South Mandar, West Aru I, west Aru II, Warim, CBM Batang
Asin, CBM Bentian Besar, North Sumbawa II, SE Tungkal, NE Natuna, Titan, Citarum, Amborip
VI, Arafura Sea, Seruway, CBM Indragiri Hulu, CBM Tabulako, Seram, Bone bay, West Sageri, East
Bawean I, Offshore Lampung I, Kumawa, Semai V, Karama, East Ambalat, West Tungkal, Biliton,
South Barito, SE Ganal I, South Matindok, East Kangean CA already approved termination from the
Minister of EMR
Based on PND 2017 (Figure 5), the western area of Indonesia dominate the exploration activity (Seismic
and Exploration Drilling). Here is the comparison of activities of Seismic and exploration drilling between
western and eastern area of Indonesia.

Table 4—Distribution of Exploration Activities in Western and Eastern Area of Indonesia

SPE-194786-MS 7

Figure 5—Comparison between Exploration Activity between Western and Eastern Indonesia Region

In 2017, SKK Migas has launched its first Memoir titled Eastern Indonesia Hydrocarbon Potential. This
book was inspired by the unbalanced exploration activity between the Western and Eastern Region in
Indonesia. Figure 11 shows the distribution of exploration activity in Indonesia showing that the 2D seismic
covers ± 2.4 million km in western region, while the eastern region was only covered by 1.1 million km. The
number of exploration wells also shows the unequal condition with 5.965 wells drilled in Western Region,
far beyond the Eastern Region with 659 wells spudded in the region during 1871-2017.
8 SPE-194786-MS

Figure 6—The Creaming Curve of Eastern Indonesia Region

By launched this memoir, SKK Migas promotes Indonesia's potential in Eastern Region which well
known as the home of the Pre-Tertiary Discoveries. The creaming curve of the Eastern Indonesian Region
shows that the Pre-Tertiary is one of the key to increase the nation's oil and gas reserves. The Pre-Tertiary
shows the growing trend while some of the Tertiary play shows the stagnant trend which indicated the
mature condition due to the discovery size and the number of wells drilled (Fig. 6).

Plan of Development
In Indonesia, the term Field Development Plan used to be called Plan of Development (POD). Definition
of POD is a plan to develop one or more oil and gas field in an integrated way in order to produce the
hydrocarbon reserves optimally by considering the technical, economic and HSE aspects.
A POD is a plan to develop one or more oil and gas field in an integrated way to produce hydrocarbon
reserves optimally by considering the technical, economic and other aspects.
There are several types of POD as follows:
1. POD I
POD I is the first plan to develop oil and gas field once a PSC is signed. This POD is subject to
Ministry of Energy and Mineral Resources ("MEMR")'s approval. In general, the first POD must be
proposed and approved before the end of a ten-year exploration period. Should there be no approval
given by MEMR within the stated exploration period, the working area must be returned to the
Government, and all exploration costs shall be borne by contractors. The first approval of POD
signifies the end of exploration period and the contractor shall proceed to development and production
phase in the next 20 years.
2. POD 2 etc.
A plan to develop oil and gas field in another structure different from POD I, but in the same
working area. POD 2 etc. shall be approved by SKK Migas.
3. POFD
SPE-194786-MS 9

A plan to develop oil and gas to produce the incremental of hydrocarbon from existing POD
whenever estimated reserves are higher than what was predicted and established in a POD. The
processing facilities in POFD will use the existing facilities in the previously approved POD. POFD
is subject to SKK Migas's approval.
4. POP
A plan to produce one or two exploration wells that had been drilled to collect and analyze the
subsurface data to find more commercial reserves (if any) that can be continued to field POD. Similar
to POFD, the processing facilities in POP will use the existing facilities in the previously approved
POD. POP is subject to SKK Migas's approval.

Figure 7—Types of Plan of Development

Based on the prevailing SKK Migas internal guidelines (Pedoman Tata Kerja or PTK) for POD year
2010, the approved POD can be revised whenever there are significant changes in the following aspects:
a. Oil and gas reserves
b. The development scenarios, including:

◦ Number of wells

◦ Production facilities

◦ Economics.
10 SPE-194786-MS

Figure 8—Project Cash Flow and Stages of Exploitation Activities

The exploitation activities in field development consist of 4 (four) stages:

1. Phase I: Phase after POD approval in the form of FEED implementation or preparation for
engineering, procurement, construction and installation (EPCI), drilling and at this stage, there is no
hydrocarbon production (on-stream).
2. Phase II: Implementation phase of EPCI and at this stage, there is no hydrocarbon production (On-
stream).
3. Phase III: The stage when there is hydrocarbon production in the field, and there are still unfinished
POD work programs.
4. Phase IV: The stage when there is hydrocarbon production in the field, and the implementation of
the POD work program has been completed.
The Monitoring activities will be focused on POD in Phase I and II in order to get the projects start
producing the hydrocarbons (oil and gas) on scheduled. Once the Project producing the hydrocarbon, then
both Contractors and Government will update the reserves by evaluating the subsurface performance based
on the newest subsurface data.

Figure 9—Oil Prices vs Plan of Development (POD) in Indonesia

SPE-194786-MS 11

Figure 10—Oil Prices vs Production Cost of PODs in Indonesia

Since the establishment of SKK Migas, a total of 435 PODs have already been approved (as of December
2017). In 2015, there was 57 approved PODs, the highest number of PODs since 2002, while the oil price
was at its lowest point since 2005. Based on fig. 9, the fall of oil price had no significant impact to PODs
proposed by contractors. Conversely, the number of POD tend to increase although the oil price fell. As
seen in fig. 10, the petroleum productions cost of POD are far below the oil prices.
The increasing number of POD approvals indicates that investing in Indonesia's oil and gas industry is
still considered very attractive and this might have been caused by the flexibility of terms and conditions of
the PSC regime in Indonesia that helped the projects become economically acceptable.
The distribution of types of the POD in Indonesia (as of December 2017) can be seen as follows.

Figure 11—Distribution Types of POD

Based on Figure 8, we may infer that the PODs were dominated by POFD (39%) followed by POD
(36%). The high percentage of POFDs shows that the amount of proven reserves was higher than previously
valuated by the earlier approved PODs.

Work Program and Budget

Work Program and Budget ("WP&B") is a proposed breakdown of Contractors’ annual operating and
expenditure plans that analyzes the conditions, commitments, effectiveness, and efficiency of operations. It
12 SPE-194786-MS

describes long-term plans for the activities such as exploration commitments, PODs, other approved long-
term programs as well as those proposed in a Contract Area to meet the SKK Migas's approval.
The WP&B cycle in one year is illustrated in the following graph.

Figure 12—Work Program and Budget Cycles

The documents of WP&B contain the following information:

a. Exploration Activities (Seismic & Geological Survey, Drilling, and G & G Studies), Lead & Prospect,
Exploration Commitment.
b. Production activities and the efforts to maintain the production

◦ Infill Drilling

◦ Plan of Development

◦ Production and Work Over

◦ Maintain Production

◦ EOR Project (Secure Recovery & Tertiary Recovery)

c. Cost of the following work programs:

◦ Exploration Activities

◦ Development Drilling & Production Facilities

◦ Production & Operations

◦ General Administration, Exploration Administration & Overhead Costs

In the event of changes in approved WP&B such as General Objective and Expenditures, Contractors
may propose these changes in WP&B Revision mechanism. The following items explain the criteria for
revision of WP&B:
a. Changing the general goals (General Objective)
i. Exploration Phase:

▪ Changes of approved Firm Commitment.

▪ Delays/acceleration/alteration of study activities, seismic/survey, exploration wells.

ii. Exploitation Phase:

▪ Changes in Production Target (increase or decrease production).

▪ Changes in drilling of development wells.

▪ Change the competition of constructions of the production facility.

b. Increase in Expenditures
SPE-194786-MS 13

In case of any expenditure which may increase the approved budget of Work Program and Budget.

PROBLEM STATEMENTS
The downfall of global oil prices and production have significantly affected exploration and exploitation
activities. These activities became less attractive for the Contractors despite high demand in Indonesia.
Therefore, by using the reserves data from approved POD between year 2003 until 2018, the paper aims:

• to evaluate the distribution of oil and gas reserves in Indonesia which will allow investors to find
and map working areas in Indonesia that have high commercial reserves; and
• to provide a big picture of the of oil and gas industry in Indonesia and to attract investors

METHODOLOGY & RESULTS

The 435 PODs that were approved by SKK Migas were scattered all over Indonesia. The purpose of this
paper is, to divide the geographical areas of Indonesia into 5 different areas (Sumatera, Java, Kalimantan,
Sulawesi and Papua). Then, to collect the data that related with oil and gas reserves and number of POD in
this area and then oil and gas reserves per projects are calculated and distributed to those aforementioned
areas.

Figure 13—Methodology of Forecasting and Modelling the Oil Reserves in Indonesia

Here is the explanation of the methodology:

1. Data Collection
Collect the data from 435 projects (PODs) that related to the oil and gas reserves and the number
of projects (PODs) in Indonesia. These projects were approved by SKK Migas between years 2003
– 2018.
2. Clustering Area
Indonesia has been divided into 5 (five) geographical areas (Sumatera, Natuna Sea, Java,
Kalimantan, Sulawesi and Papua). We consider the classification of 5 (five) geographical areas to be
realiable as we view that the existance of projects are pretty big within those areas. The oil and gas
reserves were generated and processed from the data of POD.
3. Calculation Process
Calculate and produce the oil and gas reserves equations in each area using Creaming Curve and
Linear Regression.
A creaming curve is a diagram used to present the relationship between aggregated or cumulative resource
growth from discoveries and wildcats drilled. In this paper, the Creaming Curve will be used to identify
whether the field (area) is performing (producing oil and gas) better or worse than its peers. While the linear
regression is used to produce the equations that will represent the creaming curve of oil and gas reserves.
14 SPE-194786-MS

Table 5—The Result: Oil and Gas Reserves (per Project) using Creaming Curve and Linear Regression methods

Where:
 y = the number of Reserves
 x = the number of Project (POD)
As for the way to read the table above, as in the following example:

"In Sulawesi, one future project is estimated to produce reserves by 111.24 MMBOE".

Analysis. Perform Top-down Analysis of the oil and gas reserves from 5 (five) areas. This is done to assess
which areas have the highest and the lowest oil and gas reserves.

Figure 14—Oil and Gas Reserves (per Project).

Bubble Map. Produce bubble map of the oil and gas reserves in 5 (five) clustered areas as to provide the big
picture of the geographical areas in Indonesia that will help Contractors to identify the most attractive ones.
Following the 5 steps above, here is the result of the forecasting and modelling the oil and gas reserves
using the Creaming Curve and Linear Regression Analysis.
SPE-194786-MS 15

Figure 15—Modelling the Oil and Gas Reserves in Indonesia (Creaming Curve and Linear Regression).

Here is the bubble map of estimated oil and gas reserves per project in Indonesia based on creaming
curve and linear regression analysis.

Figure 16—Bubble Map of Estimated Oil and Gas Reserves in Indonesia.

Based on analysis, we can conclude that Sulawesi is estimated to have the highest amount of oil and gas
reserves by 111.24 MMBOE per project, meanwhile Sumatera is estimated to have the lowest amount of
oil and gas reserves by 7.19 MMBOE per project compared with other areas in Indonesia.
16 SPE-194786-MS

CONCLUSIONS
To find a high oil and gas reserves per project, Contractors must conduct the exploration and exploitation
activities in Sulawesi and Papua because this area are estimated to have the highest number of oil and gas
reserves per project, while the Sumatera is estimated to have the lowest number of oil and gas reserves
per project.
This analysis shows that the eastern area of Indonesia is tend to have the highest amount of oil and
gas reserves per project, which consequently mean that the contractors must carry out the exploration and
exploitation activities in the eastern area of Indonesia to find a high oil and gas reserves and to produce
positif revenue for the projects and economically acceptable for the contractors.
Finally, this paper is expected to provide contractors a quick look at oil and gas industry in Indonesia
especially the contractors who are looking for the giant oil and gas reserves and also help them create their
petroleum exploration and exploitation strategy in Indonesia by considering on this information which will
provide benefits for both government and contractor.

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