Last month, Papua New Guinea’s fledgling National Petroleum Company signed its first deal, and it was a big one: a Memorandum of Understanding with Indonesia’s massive national oil and gas company, Pertamina. NPCP Chairman Frank Kramer explains how the relationship will work.

NPCP Chairman Frank Kramer (left) signs the MOU in Jakarta with Pertamina President Director and CEO Karen Agustiawan (right), in the presence of Indonesian Energy Minister Jero Wacik and Papua New Guinea’s Prime Minister Peter O’Neill. Credit: ANTARA/Wahyu Putro A

The National Petroleum Company of PNG, established back in 2008 as Kroton #2 and now known as NPCP , will shortly put together a working group with Indonesian petroleum giant Pertamina to identify oil and gas opportunities in PNG and Indonesia, and potentially other jurisdictions.

‘These opportunities will most likely include the border region between PNG and Indonesia, no doubt, because there is definitely a government focus along the border,’ NPCP chairman Frank Kramer told Business Advantage PNG.

The deal with state-owned Pertamina—which achieved revenues of US$70.9 billion in 2012—is the first major oil and gas deal NPCP has signed, and is significant in its own right, because it is an arrangement with another state-owned National Oil Company (NOC), rather than with a private sector entity.

About Pertamina

Head office     Jakarta, Indonesia

Shareholding 100% Indonesian State owned

Annual revenues US$70.9 billion (2012)

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Net profit after tax US$2.7 billion (2012)

Activities         Upstream oil and gas exploration and production, downstream processing and distribution, wholesale and retail, geothermal electricity generation

Products         LNG, LPG, fuel, lubricants, petrochemicals, electricity

Oil production           71.76 million barrels (2012)

Gas production          563.15 billion standard cubic feet (2012)

LNG sales        647.15 MMBTU (2012)

‘Indonesia’s population, its economic standing, its relevance to our region, all suggest that this deal is definitely very significant for us,’ explains Kramer.

‘Our border with Indonesia is our only land-based border … It’s timely that the current PNG Government recognises the unique relationship that we have with Indonesia over this border.

‘I think the recent initiative that the O’Neill Government has taken in trying to forge closer ties and look at issues that are relevant to both PNG and Indonesia is like a breath of fresh air. I think it’s going to be very relevant for not only government-to-government initiatives, but also for industry-to-industry initiatives as well.’

Mutually beneficial

Kramer says both companies will gain from the arrangement:

‘Pertamina has some forty-plus years of LNG experience. In PNG, we’re only just embarking on our own LNG journey.

‘So, sharing our more recent upstream experiences with Indonesia’s many more years in the oil and gas sector, transferring skills, transferring knowledge—these are all very positive outcomes that our MOU has the real potential to deliver.’

‘ … there may be opportunities for us to develop the resource that’s actually sitting on the Indonesian side of the border, but using the infrastructure from the PNG side of the border, which makes a lot of sense.’

NPCP’s Frank Kramer

Kramer is reluctant to go into too much detail about the MOU, saying it’s essentially a framework, but says cost and revenue sharing will be determined based on a project-by-project basis.

In the context of oil and gas exploration, which can take years just to prove the existence of resources, the MOU is short-term. However, while it expires in two years, provision exists for it to be extended.

Locations

One geographical area the joint NPCP/Pertamina working group will consider is the border region between PNG and Indonesia.

‘Companies currently working in PNG have made it known to us, as the national oil and gas company, that there may be opportunities for us to develop the resource that’s actually sitting on the Indonesian side of the border, but using the infrastructure from the PNG side of the border, which makes a lot of sense. It would be of mutual benefit to both governments, as well as the private enterprises that are involved.

‘The next obvious organisation that we’re keen to forge a relationship with, from an NOC perspective, is Petronas, the Malaysian success story.’

‘I think our upstream experience in the Highlands of PNG—and I think Indonesia has not been as advanced in those sorts of undertakings, particularly on the West Papuan side, which is very similar geologically speaking—we can share some of our upstream experiences with our Indonesian partners.

‘The MOU forms the platform for us to launch a whole host of projects and opportunities. So our goals and our milestones are really only limited by our joint imaginations.’

More MOUs

Kramer says the NPCP is already looking to other similar arrangements with organisations in the region.

‘The next obvious organisation that we’re keen to forge a relationship with, from an NOC perspective, is Petronas, the Malaysian success story. And then there are the super majors [international oil companies], which we will no doubt be working closely with.’

SOE restructure

As reported back in April this year, the PNG Government is planning to restructure its state-owned enterprises, and in the resources sector this means all hydrocarbon assets will be held in one entity, Kumul Petroleum.

‘I think this kind of rationalisation makes lots of sense,’ says Kramer. ‘It’s consistent with what the industry at large globally has done.

‘As far as the NPCP is concerned, we feel very comfortable with the plans and that the Government is going forward with restructuring its holdings in these areas.’

So, in the future might Kramer be Chairman of Kumul Petroleum rather than the NPCP? It’s too early to tell, he says.

‘The Government is yet to make its decision in that regard and I’m really not in a position to pre-empt the Government’s decision on that.’