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Interview

with Unggul Setyatmoko, Country Manager, Dart Energy Indonesia

11.06.2012 / Energyboardroom

Dart Energy has a 2015 target of 70PJ per annum net production and an ambition to become the world’s No.1 unconventional gas company. Indonesia offers 453tcf of CBM resources and an even larger shale gas potential. As country manager of Dart Energy, what is the importance of this market for Dart Energy and how does it fit in within the company’s strategy?

Dart Energy is a global unconventional gas company and within our global operations Indonesia is one of the most prospective markets for developing CBM. The domestic market for gas is seeing strong growth whilst supply to this domestic market is currently in decline. By 2016 supply and demand volumes may reach parity and at that time there will be a significant need for CBM to boost Indonesia’s gas supply. Therefore the demand is there and the support from the government has so far been strong allowing us to become more aggressive in CBM development in Indonesia. The potential reserves in Indonesia are substantial and all these factors come together to make Indonesia an attractive market for our investment. This is not to say that developing in this market is easy, as CBM is still very new in Indonesia. It is very important that industry and government work together to improve further on the operating environment.

There are many challenges to resolve in CBM development. One of these issues is the scarcity of CBM equipment in Indonesia, owing to it being a relatively new industry. The procurement process is lengthy and for a marginal industry like CBM, it is inhibiting development. Other issues which affect the conventional oil and gas industry such as land access also provide a barrier to CBM development. Coordinating with the relevant regulatory authorities in forestry and plantations as well as other private interests is a difficult process.

Another significant issue is that the CBM business requires fast development and administration processing otherwise it is not economically viable. Permitting and approvals are currently based on oil and gas regulations which entail lengthy processes of administration. There should also be better coordination between local and central government in streamlining the process. As a marginal business CBM should not be treated in the same way as conventional oil and gas and fortunately we see that the intention from the government to improve in these areas is there.

Globally, the company is targeting revenue generation in 2012 on the back of a large expansion in assets in 2011. Looking at your projects in South Sumatra and East Kalimantan, how do they fit this objective of fast paced development?

I believe that Dart Energy could have moved a lot faster in procuring equipment and this was the main challenge holding back the Sangatta project at the end of last year. However, it should be said that Dart Energy is improving with every project and although there have been delays in our exploration of the Sangatta Block with Ephindo it is still within the targeted timelines. This project has been three years in development, but we have already drilled 4 pilot wells. This is a very good achievement considering that Indonesia’s CBM industry is only just beginning and there was no previous infrastructure in Sangatta.

In South Sumatra, Dart Energy is operating two blocks. These are moving faster towards development because of our experience in Sangatta and they are within our corporate expectations in terms of timelines. By the end of 2012 we should be at the pre-POD commercialization stage for CBM-power testing. CBM has great potential as a source of electricity in Indonesia and we are looking to fully develop this for both South Sumatra and East Kalimantan projects this year and we expect our first revenues to come this year.

Dart Energy is pursuing two business models in Indonesia: aiming at CBM-to-power for feeding the domestic market on Sumatra and mid-term CBM-LNG in East Kalimantan to access LNG export markets. How do you see the balance of these activities in your business plan?

In Kalimantan there is no great demand for electricity so the ultimate goal for our CBM project in Sangatta is to supply gas to the Bontang LNG facility for exports. The Bontang facility is currently undersupplied, operating only six LNG trains so there is a great opportunity for CBM to fill this supply gap. Dart Energy is greatly helped in Kalimantan by the proximity of this LNG facility and related infrastructure to our CBM fields.

The next stage will be to persuade the other CBM companies in the area to come together to supply gas to this facility. Dart Energy is seeking to consolidate suppliers of gas in Kalimantan.

Dart Energy has been very successful in implementing the work program and working to budget with Pertamina and Ephindo. It is part of our corporate strategy to develop relations with the local CBM players and Pertamina is a key focus for our partnership. In South Sumatra, Dart Energy is also in partnership with Medco. Naturally we must also seek to establish good relations with companies involved in mining, plantations and agriculture. We do not believe that CBM should be viewed as a priority over these other businesses. Instead, there should be open collaboration and dialogue. Our partnerships have been our major asset in Indonesia and everywhere that Dart Energy operates the office is run by local staff thereby guaranteeing better relations with local stakeholders.

What would you say is the main value that Dart Energy brings to its partnerships and to the Indonesian CBM industry?

CBM is not an easy business technically and commercially and Dart Energy brings a great deal of experience to this market. In particular we are bringing our Australian expertise to the markets in Asia and this is recognized and appreciated by our local partners. For example, the pilot to power model has already been conducted in Australia and we also bring in commercial expertise in supplying to power plants. Dart Energy is also be keen to develop the CBM to LNG process.

On 25 August 2011 the company announced plans for a major restructuring – listing on the Singapore exchange to better access financing. How much are you arguing to pour more resources into Indonesia?

As you have seen on our company website, the proposed IPO of Dart Energy International has been deferred. Dart Energy will review the allocation of resources within the current portfolio of assets with a near-term operational focus of achieving production and revenue at key projects. Dart Energy is maintaining the drilling plan in Indonesia in 2012 to focus on pilot production and extending this drilling program well into 2013. The scale of our drilling program indicates the importance with which Dart Energy views the Indonesian market and we will draw capital heavily from our headquarters into the market.

The potential for the company in CBM is around Java and Sumatra. However, Dart Energy is not just a CBM company, but an unconventional gas company with competency in developing shale gas reserves as well. Dart Energy is therefore also exploring the shale gas potential of Indonesia and we are hoping that very soon, in the coming months, Dart Energy will materialize its plan for shale gas. Shale gas is very new in Indonesia but the potential is great.

Having dedicated many years to CBM development, how do you see its future? /

CBM is the future for Indonesian energy and Dart Energy has strong capabilities and a significant role to play in developing this industry. I hope to use my experience to aggressively develop CBM where the potential is there. I was formerly working with BP which is a very large company and Dart Energy is much smaller. However, in Dart Energy we can move much faster and take decisions quicker. I therefore feel that I am in the right place.

In the future the main challenges will be connected to commercialization and development. After we finish the exploration phase we will prepare the plan of development and under current regulation only the POD is ring fenced, greatly inhibiting the development of CBM. However we are confident that these issues can be resolved and I would like to see Dart Energy playing an important role in delivering this government’s ambition to produce 500 million cf CBM capacity in 2015 and 1.5 billion cf in 2020. We would like to be a major part of this and in 10 years time my hope is to see Dart Energy powering my home.

What would be your final message to our readers?

Indonesia is open for investment and there are many opportunities in CBM, shale gas as well as other opportunities including geothermal energy. I would encourage companies to come here.

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