Pertamina plans to invest $ 2 bn to boost upstream operations

After decades of monopoly, state oil and gas company Pertamina is trying to beat the rising competition by investing more in the upstream sector, where competition is scarce and returns are higher.
According to Pertamina deputy president director Omar S. Anwar, the company plans to increase its investment by 25 % to Rp 22 tn ($ 2 bn) this year, 65 % of which will be used to finance upstream investment projects. The company plans to double its investment budget to Rp 41 tn by 2012, again with a focus on upstream projects.

Omar said the company would focus its operation on the upstream sector, including in the oil, gas and geothermal fields, because all the big industry players got their fortunes from their upstream operations.
"The future of the oil and gas industry is in the upstream sector, and we don't want to be left behind; we have to focus on that sector as well," Omar told on the sidelines of the Asian Development Bank's (ADB) annual general meeting. He added the upstream sector offered higher returns than the downstream sector, which is more competitive, with more market players.

Pertamina's returns from its downstream operation average between 5 and 10 %, while returns from the upstream industry reach 50 %.
"Our downstream operations require a lot more work, especially in infrastructure. But the returns are much lower," Omar said. To reflect its priorities, Pertamina will allocate 60 % of its investment plan this year and in the future for projects in the upstream sector. They include the development of existing oil fields, covering an area of 1.2 mm hectares, acquisition of oil fields from other operators, development of natural gas, and development of geothermal energy.

"Indonesia has the largest geothermal resources in the world, and this is still underdeveloped because of lack of incentives. We believe that when incentives are right, this sector will pick up, and when that happens, we will already be well-positioned," he noted.
Pertamina, he went on, would not do all its upstream development alone. It would seek outside partners to develop its upstream businesses, joint acquisition, joint management and joint bidding on new areas, including overseas oil and gas fields.

However, Omar noted although Pertamina's future focus would be on the upstream sector, it would continue to maintain downstream operations and keep a market share at the level of around 60 %.
"There will be a lot of competition and tighter competition in the downstream sector, and we will continue to maintain our presence as part of our public service obligation," he said. Some major downstream investment projects in the pipeline, and offered up for foreign participation, are the development of oil refineries, liquefied petroleum gas (LPG) depots, as well as new gas stations.

Oil refineries are one of the most attractive ventures offered by Pertamina, considering Indonesia currently still imports about half the country's demand for Premium gasoline of 21 tn kiloliters annually. LPG stations and depots are another attractive venture, as the country is moving away from kerosene to LPG for household needs.
Pertamina plans to build 45 new gas stations this year, which is also open for investor participation. Of the total investment needs, Omar said, Pertamina would seek outside financing of up to 40 %, or Rp 8.8 tn this year.

Pertamina booked net profit of Rp 32 tn last year, up from Rp 24 tn in 2007 and Rp 19 tn in 2006.