ephindo

The Prospects of Coal Bed Methanein Indonesia

Sammy HamzahPresident & CEOEphindo

Presented atBimasena International Energy and Mining Conference

Jakarta Convention Center, 7 November 2007

2

Agenda

2 Ideal Business Process vs. Reality

1 Introduction to CBM

4 The Opportunity

5 Conclusion

3 Conventional Gas vs. CBM

3

• Coal bed methane (CBM) is natural gas found in the coal seams of most coalfields. Methane (CH4) is contained within the coal seam where it is absorbed or attached to the coal

• Sometimes referred to as coal seam methane (CSM) or coal bed gas• Although produced differently from traditional natural gas, CBM is

sold and used the same as traditional natural gas

What is Coal Bed Methane?

4

Coal as a Reservoir Rock: Structure

5

Coal Bed Methane

Well

Truck Mounted Rigs - one day to drill

Source: Western Gas

6


4 The Opportunity

5 Conclusion



7

Ideal Business Process vs Reality

- Industry in making- Various resources &

study- Journal/Introduction to

CBM

- Using existing data:seismic data, well logs, etc.

- Desk study- Technical viability:experience from other

countries, existing R & D

Phase I Phase II

- Further Desk Study- Field Activities:. Core Sampling

. Lab Test. Eventually Pilot Test

- Further Pilot Test- Field Development

- Gas Sales Agreement

Potential for Exploration???

Confirmation of Potential Identified in Phase I

Phase III

CBM Exploitation

- Commercialization- Gas Delivery to end

Customers

Phase IV

CBM Production

Combined CapitalGovernment & Private

Contractor’s commitment

Normally Government Sponsored

8

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20252005 2006 20072004

PP: CBM – 1Rambutan

(GOI Sponsor)

PP CBM: – 2,3(Private sponsor)

EvaluationPP: CBM – 1,2,3

The beginning of CBM Era(The 1st KKS)

2nd-5th KKS

CBM Production (Projection)~100 MMcfD

CBM Production (Projection) ~500 MMcfD

CBM Production (Projection) ~1 BcfD

KKS increment / Production rate = 250 MSCFD/well

Government ParticipationProject EvaluationThe beginning of Comercial EraCBM Production

PP : Pilot ProjectPSC : Production Sharing ContractInvestment and Production Projection

Legend:

USD 600 million

USD 2.5 million

Incentive alteration

First CBMproduction

Ministerial Regulation 033/2006 & Contract

Model

Indonesia CBM Roadmap

Source: Dr Ing Evita Legowo Gas, Power & Energy Alternative

Conference, Feb 2007

9

4 The Opportunity

5 Conclusion




10

Comparison: Sandstone and Coal Reservoirs

11

Conventional Gas vs CBM

CHARACTERISTIC COAL SEAMS GAS SANDS

Gas source Coalification Migration from source rock

Major gas storagemechanism

Adsorption Free gas under pressure

Major flow path Cleat system and other fractures

Interconnected porosity

Production mechanisms

Desorption, diffusion and Darcian flow

Darcian flow

Initial saturation condition in flow path

Primarily water Primarily gas

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Comparison Summary

Nature:• Large Reservoir• Technical:

– High pressure– High gas rate

Business Characteristics:• Wholesale• Volume of reserve• Direct extraction• Gas supply flexible

Nature:• Spread Reservoir• Technical:

– Low pressure– Low gas rate

Business Characteristics:• Retail• Volume repetitive• Extracting trapped gas• Gas supply not flexible

CBMConventional Gas

13

Time

Mag

nitu

de

Source: Bruce Atkins, Focus, Gaffney, Cline & Associates

Oct 2003

Conventional Gas vs CBM

14

Cost Structure

To achieve the same production rate as O&G:

Drill 10 – 20 more wells

Overhead

Facilities 60%

10%

30%

15Source: Ayers, 1994

Integrated Coal Bed Gas Project

16

• Geological: Coal Resource Gas Content Reservoir SaturationReservoir Permeability

• Engineering: Technology for DevelopmentInfrastructure and Gathering System CapabilityExpertise

• Corporate Structure:Capital AvailabilitySenior Management/Investor CommitmentSuitable MarketGovernment Regulatory and Royalty Structure

Critical Elements for CBM Development

17

4 The Opportunity

5 Conclusion




18

Who are the Players?

Country Company

USA Anadarko

Canada EnCana Corp

Australia Arrow EnergySantos

Why is it unattractive

for the giants?

19

Fiscal Drivers for CBM Growth

• US: Section 29 tax credits fuelled massive growth in CBM industry

in mid eighties• Queensland:

Government requires electricity retailers to have 13% of their electricity generated by gas – penalties for non-compliance of around 10/MWH

• India:CBM-III bidding round this year includes:• 7 years tax holiday from the date of production• Fiscal stability• No participating interest of the Government• Freedom to sell gas in the domestic market at market

determined rate

WHAT WILL GoI OFFER

???

20

What Does It Mean for Indonesia?

OPPORTUNITY

• Blessed with natural resources• Pioneer and main player in O&G for 40 years• Investors’ excitement (domestic and foreign)

• Government’s commitment

21

Why Now?

• Significant global and domestic need for renewable energy

• Declining oil production• To support of government’s energy policy

changing from kerosene to gas• Taking advantage of high oil price• CBM euphoria for the last two years

22

5 Conclusion




4 The Opportunity

23

Investors’ Concerns

• Little data on CBM potential• Proliferation of newly licenced KPs in a potential

CBM Work Area • Lengthy process of proposal evaluation • Decision making: central, local?• Lack of CBM PSC model • Risk of sharing facility

24

Challenges Ahead

• Win-win business propositions• Environmental issues• Coordination effort:

– Central and local government– O&G operator and CBM licence holder– KP/CCoW and CBM licence holder

25

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

45000000

50000000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

YEAR

GA

S (M

cf) A

ND

WA

TER

(bbl

)

Water

Gas

Data from WOGCC, 2002

CBM and Water Production Powder River Basin

26

Investors’ Expectation – GoI Role

• Provide incentives to kick start and promote CBM development

• Provide supporting climate to investors • Give hard evidence of serious commitment

27

Thank You

ephindo

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