P

ertamina Hulu Energi (PHE), the upstream subsidiary of state-owned energy giant Pertamina, is set to increase its investment spending by 9.8 percent in 2018, as it plans to soon take over full operatorship of several oil and gas blocks.

Pertamina has been tasked by the government to control eight oil and gas blocks, whose operators will see their contracts expire in 2018. PHE is expected to fully operate at least four of those eight blocks, namely the North Sumatra Offshore (NSO), Tuban, Ogan Komering and Offshore Southeast Sumatra (OSES).

This means PHE will continue its operations in the NSO block in North Sumatra, which was fully acquired by the company from the United States-based oil producer ExxonMobil in September 2015.

At present, PHE already controls 75 percent of ownership in the Tuban block in East Java, 50 percent in the Ogan Komering block in South Sumatra and 20.55 percent in the OSES block in Southeast Sumatra.

“For this year, our operational cost is projected to reach US$1.07 billion, while our capital expenditure will stand at $536.54 million,” PHE president director Gunung Sardjono Hadi said on Tuesday.

In 2017, PHE’s operational cost and capital expenditure only stood at $858.29 million and $488.61 million, respectively.

PHE also aims to increase its oil production by 1.6 percent to 70,410 barrels of oil per day (bopd) this year, while its gas production is projected to climb by 6.57 percent to 771.07 million standard cubic feet per day (mmscfd).

Gunung said the takeover of the Ogan Komering, Tuban and OSES blocks would not significantly affect PHE’s oil and gas production in 2018, especially considering the acquisition timeline of those three blocks.

PHE is set to take over the Ogan Komering and Tuban blocks by the end of February, while the OSES block will only see its contract expire on Sept. 5.

As of 2016, PHE’s oil production split from the four mandated blocks stood at 10,638 bopd, 61.7 percent of which came from the OSES block. Meanwhile, its gas split reached 96 mmscfd, 59.1 percent of which came from the NSO block.

“Our gas production will see better growth compared to oil production because the Jambi Merang block [in South Sumatra] is expected to generate better output this year,” Gunung said.

PHE’s oil and gas production from the Jambi Merang block reached 2,056 bopd and 41.2 mmscfd in 2016.

PHE will operate all of those four blocks using the new gross-split program, which was just introduced in early 2017. Under the program, the company is responsible for paying the costs of exploration and production instead of having it reimbursed by the government as in the old cost recovery mechanism.

Deputy Energy and Mineral Resources Minister Arcandra Tahar has repeatedly touted the gross-split program, saying Pertamina and its subsidiaries would be able to operate more efficiently by using such a mechanism.

Meanwhile, PHE has only set moderate revenue and net profit targets for 2018. The company expects to book $1.97 billion in its top line, slightly below the 2017 figure of $1.99 billion, and record $211.62 million in its bottom line, which fell by an average of 15.64 percent annually.

The company also expects to record $910.04 million in earnings before interests, taxes, depreciations and amortization (EBITDA) in 2018, which plunged by an average of 22.35 percent year-on-year.

Gunung said this was because PHE still used the oil assumption price of $48 per barrel in its 2018 work program and budget (RKAP). But when the price had been adjusted to the actual level, PHE would certainly book far better results, he added.

The price of global benchmark Brent crude reached $62.79 per barrel on Wednesday after hovering at more than $70 per barrel from Jan. 24 to 26. This is far better compared to last year, when the price plummeted to as low as $44.82 per barrel on June 21.