The Prospects of Coal Bed Methane in Indonesia

Sammy Hamzah President & CEO Ephindo

Presented at Bimasena International Energy and Mining Conference Jakarta Convention Center, 7 November 2007

Agenda
1 2 Introduction to CBM Ideal Business Process vs. Reality

3 4 5

Conventional Gas vs. CBM The Opportunity Conclusion

What is Coal Bed Methane?

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 3

Coal as a Reservoir Rock: Structure

Coal Bed Methane Well

Truck Mounted Rigs - one day to drill

5 Source: Western Gas

1 2

Introduction to CBM Ideal Business Process vs. Reality

3 4 5

Conventional Gas vs. CBM The Opportunity Conclusion

Ideal Business Process vs Reality

Potential for Exploration??? Confirmation of Potential Identified in Phase I CBM Exploitation CBM Production Phase I Phase III Phase IV

Phase II

- 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

- Further Desk Study - Field Activities: . Core Sampling . Lab Test . Eventually Pilot Test

- Further Pilot Test - Field Development - Gas Sales Agreement

- Commercialization - Gas Delivery to end Customers

Normally Government Sponsored

Combined Capital Government & Private

Contractors commitment

Indonesia CBM Roadmap

PP: CBM 1 Rambutan (GOI Sponsor) Evaluation PP: CBM 1,2,3 USD 600 million PP CBM: 2,3 (Private sponsor) 2nd-5th KKS CBM Production (Projection) ~100 MMcfD USD 2.5 million CBM Production (Projection) ~500 MMcfD Incentive alteration CBM Production (Projection) ~1 BcfD

2004 2005

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

KKS increment / Production rate = 250 MSCFD/well

Ministerial Regulation 033/2006 & Contract Model

Legend:
First CBM production Government Participation Project Evaluation The beginning of Comercial Era CBM Production PP : Pilot Project PSC : Production Sharing Contract Investment and Production Projection

The beginning of CBM Era (The 1st KKS)

Source: Dr Ing Evita Legowo Gas, Power & Energy Alternative Conference, Feb 2007

1 2

Introduction to CBM Ideal Business Process vs. Reality

3 4 5

Conventional Gas vs. CBM The Opportunity Conclusion

Comparison: Sandstone and Coal Reservoirs

10

Conventional Gas vs CBM

CHARACTERISTIC Gas source COAL SEAMS Coalification GAS SANDS Migration from source rock Free gas under pressure Interconnected porosity Darcian flow

Major gas storage mechanism Major flow path

Adsorption

Cleat system and other fractures Desorption, diffusion and Darcian flow Primarily water

Production mechanisms Initial saturation condition in flow path

Primarily gas

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Comparison Summary
Conventional Gas Nature: Large Reservoir Technical:
High pressure High gas rate

CBM Nature: Spread Reservoir Technical:

Low pressure Low gas rate

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

Business Characteristics: Retail Volume repetitive Extracting trapped gas Gas supply not flexible
12

Conventional Gas vs CBM

Magnitude

Time

Source: Bruce Atkins, Focus, Gaffney, Cline & Associates Oct 2003

13

Cost Structure
Overhead 10% Facilities 30% 60%

To achieve the same production rate as O&G: Drill 10 20 more wells

14

Integrated Coal Bed Gas Project

Source: Ayers, 1994

15

Critical Elements for CBM Development

Geological:
Coal Resource Gas Content Reservoir Saturation Reservoir Permeability

Engineering:
Technology for Development Infrastructure and Gathering System Capability Expertise

Corporate Structure:
Capital Availability Senior Management/Investor Commitment Suitable Market Government Regulatory and Royalty Structure

16

1 2

Introduction to CBM Ideal Business Process vs. Reality

3 4 5

Conventional Gas vs. CBM The Opportunity Conclusion

17

Who are the Players?

Country
USA Canada Australia

Company
Anadarko EnCana Corp Arrow Energy Santos

Why is it unattractive for the giants?

18

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: WHAT WILL 7 years tax holiday from the date of production OFFER Fiscal stability ??? No participating interest of the Government Freedom to sell gas in the domestic market at market determined rate

GoI

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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) Governments commitment
20

Why Now?
Significant global and domestic need for renewable energy Declining oil production To support of governments energy policy changing from kerosene to gas Taking advantage of high oil price CBM euphoria for the last two years

21

1 2

Introduction to CBM Ideal Business Process vs. Reality

3 4 5

Conventional Gas vs. CBM The Opportunity Conclusion

22

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

23

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

24

CBM and Water Production Powder River Basin

50000000 45000000

Water

GAS (Mcf) AND WATER (bbl)

40000000 35000000 30000000

Gas
25000000 20000000 15000000 10000000 5000000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

YEAR

Data from WOGCC, 200225

Investors Expectation GoI Role

Provide incentives to kick start and promote CBM development Provide supporting climate to investors Give hard evidence of serious commitment

26

Thank You
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