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State-owned oil and gas firm Pertamina on Tuesday said it planned to raise its crude oil production to one million barrels per day of oil equivalent by 2015, up from 432,000 bpd currently, largely through acquisitions.

It also plans to boost refinery capacity 50 percent to 1.5 million bpd, president director Karen Agustiawan said.

The sharp increase in oil production and refinery capacity, if achieved, would pave the way for Indonesia to cut the import of oil products and make substantial savings on its energy subsidy bill, which amounts to billions of dollars a year.

“Our main focus is on upstream, probably most of our investment will go to upstream,” Karen said.

Pertamina has increased its planned investment in the upstream part of the business to Rp 29.4 trillion ($3.18 billion) in 2010, from a previous estimate of Rp 26 trillion. It plans to invest Rp 34 trillion in upstream in 2011, not including acquisitions, Karen said.

She said Pertamina would use internal funds, bank loans and a bond issue to finance acquisitions and investments, and that the amount it would spend on acquisitions was “unlimited” in order to achieve its output target. “If we have to find the financing we will find it.”

Pertamina has previously said it planned to raise $1.5 billion from a bond issue this year to finance its upstream activities.

Several upstream projects, mostly producing natural gas, are being developed, including in Sumatra and Java.

Karen said boosting its refinery capacity would mean it could stop oil product imports. Pertamina had previously said it planned to boost capacity at its refineries in Balikpapan, Dumai and Balongan and also build new facilities in Banten and East Java. No construction has started yet.

Pertamina will add 200,000 bpd capacity to the 125,000 bpd Balongan refinery in West Java, Karen said.

However, she said that Pertamina’s Iranian and Malaysian co-investors want a 10-year tax break to build a refinery in Banten, adding that discussions over possible tax breaks have held up the project.

“If that issue is cleared, then I think there is no hurdle anymore for Pertamina to go ahead with the project. I think it should be tax free. This is the project to secure energy security.”

Karen said talks with Saudi Aramco were in the final stages over the import of about 200,000 bpd of crude for Pertamina’s Balongan refinery expansion.

Indonesia has nine refineries with a combined capacity of around one million bpd, but those only meet 70 percent of domestic needs with the shortfall being covered by imports.

The nation’s oil production has declined on a combination of ageing wells and lack of investment in new projects.

Foreign investors have grown increasingly wary about committing to long-term projects because of a rising tide of nationalism and policy flip-flops.

Progress with two particular projects — Donggi-Senoro and Natuna — is being closely watched as investors are concerned about their commercial viability depending on whether the gas produced is exported, or sold to the domestic market at a much lower price.

More recently, Indonesia has indicated that gas sold to the domestic market may have to be sold at a higher price.

Karen said that in both cases, the gas should be sold to both the domestic and the export market, and that it may be possible to raise the domestic gas price to an economic level as soon as next year.

In the case of the Donggi-Senoro liquefied natural gas project, Pertamina wanted to export 70 percent of the gas and sell the rest domestically, she said.

“All the investors outside Indonesia are looking at how the government is reacting toward this [Donggi-Senoro] project.”

Indonesia expects to resolve the terms, conditions and partners for the giant Natuna natural gas project by September.

The Natuna D-Alpha block has about 222 trillion cubic feet of gas, of which 46 tcf is thought to be commercially recoverable. The project will require about $40 billion for development. In 2008, Pertamina named eight potential partners, including Malaysia’s Petronas, ExxonMobil, Chevron, and China National Petroleum.

 

Reuters