1. Commercial Challenges in
CBM Development
Mohd. Radzif Mohamed
VICO CBM Commercial Manager
Indo CBM Conference
25th March 2014

2. VICO Overview
• VICO has operated in Kalimantan since early 1970
• Initial driving force behind LNG development
• Delivered over 12 TCF of gas to domestic and
export markets
• VICO operates both the Conventional Sanga
Sanga PSC & the Sanga Sanga CBM PSC
• VICO is a 50:50 JV between BP and ENI
operating 9 rigs this year
• Active CBM explorer in Indonesia and first to
produce and sell CBM gas to LNG and
for domestic power generation

3. CBM to Electricity
VICO is now supplying CBM gas to PLN.
The electricity from CBM gas powers more than 1,000 homes in East
Kalimantan.
This is the first CBM to Electricity Project in Indonesia.

4. Indonesia CBM Potential
• CBM potential in Indonesia is significant with GOI estimate of 450 TCF
• Majority of resource potential is in Kalimantan & Sumatra
• Commerciality and produceability yet to be proven
• GOI target of 500 mmscfd by 2015 unlikely to be achieved

5. Production&Import(MTOE)
Indonesia Needs CBM
• Strong GDP growth is driving increased energy demand
• Domestic conventional production is falling
• Without CBM Indonesia will become a net importer of gas
2004 began
Oil Imports
2022 potentially
begin Gas Imports
Source: IEA, WoodMackenzie Energy Markets Service
Source: APEC Energy Demand and Supply Outlook 5th Edition (2013)
Historical Data: World Energy Statistics 2011 © OECD/IEA 2011
Indonesian Net Production and Imports

6. Recent Supply/Demand News

7. • Potentially large footprint
• Low pressure requires many low gas
rates wells
• Expensive well completion costs
• CBM proven reserves largely follow
development
•Fiscal incentives
•Regulations
•POD & Reserves
•Land Access
•Financial capability
•Large upfront capital with
long, slow payback period
•Experience
•Technical Expertise
•Land Access (overlapping
issues)
•Social issues
•Access to technologies,
service companies, rigs
•Open access pipeline
•Attractive Gas Price &
flexible gas markets `
Commercial RequirementTechnical Requirement

8. Appraisal and pilot drilling is continuous throughout the life of the project;
• Continuous drilling is required to determine the areas for development, achieve
production target and identify areas for relinquishment
• Also required to continually progress from resource to reserves and from 3P to
1P
• CBM Projects have to “Produce to Prove”
Reserve build up is unpredictable
• Unconventional projects needs a greater number of wells to determine
reserves.
• Adjacent well performance can vary wildly
Require PSC extension
• Longer economic payback period, closer to PSC expiry
GSA process
• Need to deal with uncertainty of reserves and the requirement to have booked
reserves prior to signing GSA
• Not efficient to have separate gas allocation/sellers appointment
agreement/GSAs with every phase of POD
Paradigm shift on POD
• “Ring fenced” approach will not be economic. – needs “Block Basis”
• “fit for purpose” POD for marginal business
CBM Commercial Considerations

9. Price Incentives
The current fiscal regime in Indonesia and the high initial
cost of CBM development will require a price paid for CBM
close to current Asian LNG prices.
– One of the reasons for slow development of CBM is that CBM
producers are not sure that they will be allowed to access the
international markets and be faced with significantly lower
domestic pricing, which would make their projects uneconomic.
– If the CBM gas is to be able to go into the domestic market,
initially, the Government needs to support prices that are similar to
export pricing (i.e. 13 to 15% slope).
– In the longer term, as happened in the US, as the Industry learns
about CBM development and infrastructure is built (including the
important service company scale) the development costs will fall.
But the current system means that pioneers, risk not receiving
such benefits of future reductions in development costs.

10. Keeping CBM Value in Indonesia
• With a CBM gas price of $13.7/MMbtu…
 Only $1.8/MMbtu leaves Indonesia via Contractors vs. $20/MMbtu for Imported
MFO and $16/MMbtu for Imported LNG
 Effective cost of gas to Indonesia is $8.4/MMbtu, $6.7/MMbtu project costs and
$1.8/MMbtu Contractor Take
 Majority of $6.7/MMbtu Project Costs are within Indonesia creating additional
value through multiplier effect
• Domestic CBM at $13.7/MMbtu saves Indonesia $16bn vs. Imported LNG and
$27bn vs. Imported MFO for a 1.85 TCF project
20.0
16.0
13.7
5.3
6.7
1.8
0
5
10
15
20
Imported MFO Imported LNG CBM Gas Price GoI Take Project Costs Contractor
Take
FuelCost(US$/MMbtu)
Effective Gas Price $8.4/MMbtu

11. Government Support
Fiscal Policies to Promote CBM Development
• Need competitive gas price and flexible market to develop CBM - gas price similar
to Asian LNG prices
• Frontier business, need incentives for risks, appropriate and fit for purpose
technology.
• Investors need to be assured their investment will get sufficient return
Regulations
• Simple process and reduced number of permits, especially for land access
• Flexibility in procurement and budgeting
• Access to technologies, service companies, rigs
• Suitable POD for CBM,i.e. “Block Basis”
• Conducive tax regime
Others
• More flexible GSA for not only 1P but 2P and 3P reserves
• Encourage Open Access to pipelines
• Build infrastructure and important services to reduce the development costs

12. THANK YOU