The Revival of Bakrie Group’s Oil and Gas Business

Penulis: Safrezi Fitra

Editor: Amal Ihsan Hadian

Kamis 25/10/2018, 15.30 WIB

The government extended and gave several new oil and gas block contracts to Bakrie Group’s companies.

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After declining due to Lapindo mudflow disaster in 2006, the Bakrie Group’s upstream oil and gas business is starting to rise again. The indications are that several companies from this business group founded by the late Achmad Bakrie managed to secure the right to manage oil and gas blocks and the contract extension for previous blocks from the Ministry of Energy and Mineral Resources (ESDM).

PT Minarak Brantas Gas, one of the companies owned by Bakrie Group, has recently secured the right to manage Banyumas Block in Central Java. The subsidiary of Lapindo Brantas Inc succeeded in winning the phase two auction of the oil and gas working area (WK) that was opened last August.

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Lapindo Brantas Inc President Director Faruq Adi Nugroho said the company will start to implement seismic surveys to determine the potential of oil and gas reserves. “We conduct seismic for a while, after that we can immediately run the production,” he said in Jakarta, Monday (10/22).

Minarak will manage the Banyumas Block with a definite commitment of US$ 4 million for the first three years. The funds are intended for geological and geophysical (G&G) surveys and drilling of one exploration well. The signature bonus is US$ 500,000.

Banyumas Block is located on the mainland of Central Java-West Java. The total area reaches 3,612 square kilometres. According to Lapindo, the block has enough oil and gas reserves. Gas production could reach 50 million cubic feet per day (MMSCFD), while the potential oil and gas reserves are around 45 million barrels of oil equivalent (MMBOE). The gas produced by the Banyumas Block will later be sold to the government.

Last August, Lapindo along with PT Prakarsa Brantas and PT Minarak Brantas Gas also received contract extension for managing Brantas Block. The contract will expire in two years, and Lapindo will get a new contract for a period of 20 years in 23 April 2020.

With the certainty of contract extension, Lapindo will boost gas production in the Brantas Block from 20-25 MMSCD to reach the target of 30-35 MMSCFD by the end of the year. Furthermore, gas production in the oil and gas working area will also be increased to 100 MMSCFD by 2022-2023. After five years of new contract, gas production will be boosted to 150 MMSCFD. “God willing, our production contributes quite well in the Eastern region to Central Java and so on,” Faruq said.

The Energy and Mineral Resources Ministry’s Director General of Oil and Gas Djoko Susanto said the government received a signature bonus of US$ 1 million (Rp 13.4 billion) for the Brantas Block contract extension. It also came with a definite work commitment of US$ 115 million (Rp 1.5 trillion) in the first five years for locations where seismic and drilling have not been carried out, particularly offshore.

According to Djoko, the Lapindo’s contract was extended as no other contractor has volunteered to work on the Brantas Block. Investors feared that the ‘Lapindo Mudflow’ disaster will recur. However, he made sure that the Brantas Block is now safe. Operations in the block are still running, and there are no accidents like what happened in 2006.

He also ensured that the people living around the block have approved the granting of the contract extension to Lapindo. “There is no refusal from them. If there is, we would not give our approval. We had also asked for approval from the regional government there,” he said. Lapindo will work on a different location, not the location of the mudflow. Mining activities are no longer running in the mudflow location, which is now protected with embankment.

Twelve years ago, Lapindo had to face a hot mudflow that flooded three sub-districts in Sidoarjo, East Java. This problem occurs because of its operational activities. The company was forced to stop its activities in the Brantas Block and bear compensation of Rp 3.8 trillion. In 2016, the government allowed Lapindo to resume operations in the Brantas Block. This was done so that the company can pay off the state bailout fund of Rp 827 billion, which had been used for compensation payments.

Lapindo Brantas Inc is the second-tier subsidiary of PT Energi Mega Persada Tbk (EMP), one of the Bakrie Group oil and gas companies. In March 2004, EMP acquired Kalila Energy Ltd and Pan Asia Enterprise that owned 100 percent stake in Lapindo Brantas. Meanwhile, Lapindo controls 50 percent of the Brantas Block management. In July 2007, the EMP separated Lapindo Brantas, Kalila Energy and Pan Asia Enterprise from the company’s financial reports.

Aset Blok Migas PT Energi Mega Persada Tbk
Energi Mega Persada's Oil and Gas Block Assets

Not only Lapindo, EMP also began to develop its upstream oil and gas business. Last July, the government decided to give a contract extension of the Malacca Straits Block in Riau to EMP as the operator and PT Imbang Tata Alam. The contract will expire on 4 August 2020.

Based on its report, EMP now has six oil and gas blocks. Besides Malacca Straits, the other five blocks are Gebang, Korinci Baru, Tonga, Kangean, and Bentu. In the Bentu Block, EMP has just started drilling four wells. Meanwhile, Segat 5 well is the first gas well location to be drilled by EMP Bentu Ltd this year. Three other gas well locations will follow, namely Segat 8, Seng 4, and Segat 7. All of these gas wells are located in Langgam Sub-District, Pelalawan Regency.

The company targets the Bentu Block to boost production. EMP Bentu Ltd currently produces natural gas with an average of 55 MMSCFD, rising from 46 MMSCFD last year. The production will be increased again to 96 MMSCFD.

In addition to boosting production in the existing oil and gas blocks, EMP is also trying to find new oil and gas blocks. Last year, it was eyeing on the Andaman Block, which is located off the coast of Aceh covering an area of 7,399 square kilometres. This block has 844.14 billion cubic feet (bcf) of gas reserves and 196.53 million barrels of oil. However, EMP failed to win it because the government chose the consortium of Premier Oil, Kriss Energy and Mubadala Petroleum.

In this year’s oil and gas auction, EMP wanted the management right for Selat Panjang Block. The company competed with the consortium of Sonoro Energy and PT Menara Global. Unfortunately, EMP failed to win as it did not meet the criteria set by the Ministry of Energy and Mineral Resources.

In addition to the upstream oil and gas business, EMP intends to expand into the downstream sector. The company also plans to enter the petrochemical business by establishing a purified terephthalic acid (PTA) plant worth US$ 600 million (Rp 9 trillion). The expansion is carried out in collaboration with Reignwood International Investment Group, a company owned by Thailand tycoon Chanchai Ruayrungrua, which is also listed as one of the EMP shareholders.

In the midst of a difficult oil and gas business, EMP managed to record a positive financial performance in 2017. Despite a 40 percent decline in sales, the company was still able to record a net profit of US$ 24.4 million (Rp 349 billion). In 2016, it still recorded a loss of US$ 345 million.

According to Energi Mega Persada Deputy Chief Executive Officer (CEO) Syailendra Bakrie, the decline in sales occurred because the company no longer owned the ONWJ Block and the Semberah Block last year. EMP also focused on maintaining oil and gas wells. It is deemed more cost-effective compared to exploration activities, which need high cost.

However, its good performance did not continue this year. In the first month of 2018, the company was only able to record a net profit of US$ 1.9 million. EMP's profit dropped from US$ 67.2 in the same period last year due to a large financial burden.

Produksi Migas PT Energi Mega Persada Tbk

Energi Mega Persada's Oil and Gas Production

In order for its business to run well, the company carried out financial improvements. Currently, EMP still has a debt of Rp 260 million, which has been reduced considerably from US$ 700 million in 2013. Debt restructuring will be continued by issuing new shares (right issue). EMP plans to issue 15 billion new shares, and 3.6 billion shares resulting from the execution of warrants. “It wants to reduce loans and related interest expenses before the end of this year,” Syailendra said.