PT Pertamina, prepared an investment US$7.8 billion in 2020 to continue aggressively drilling wells, said the CEO on Saturday (03/07) - Photo by the Company

JAKARTA (TheInsiderStories) – Indonesian largest oil and gas producer, PT Pertamina, prepared an investment US$7.8 billion in 2020 to continue aggressively drilling wells, said the CEO on Saturday (03/07). This year, the producer is targeting to drill 411 wells from 351 wells in 2019.

“The biggest investment is in the upstream sector, amounting to $3.7 billion in order to reach the target of 1 million barrels per day,” said the CEO, Nicke Widwayati, by adding the amount contributing 65 percent of domestic volume.

In 2020, oil and gas production is targeted at 923 million barrel oil equivalent per day (MBOEPD), up compared to the 2019 prognosis of 906 MBOEPD. And by 2030, she added, the largest contribution expected in 2030 comes from enhanced oil recovery and transformation of resources to production in large oil and gas fields or 36 percent of total production volume. 

Pertamina, said Nicke, will also be more aggressive in finding an additional oil and gas reserves through a seismic survey. In 2020 the total area of ​​2D seismic surveys including 2D open areas reached more than 31,000 km, an increase of 500 percent from last year.

“The 3D seismic reaches more than 1000 square km, an increase of 55 prepares compared to 2019. This year, Pertamina is the largest seismic survey in the Asia Pacific region,” the CEO stated.

Widyawati also emphasized that the production increase will also be carried out on new renewable energy, especially geothermal with a target of 4,635 gigawatt per houe (GWH), up by 9 percent compared to the 2019 prognosis recorded at 4,271 GWH.

The energy producer has announced to  releases another global medium term notes (GMTN) under its US$10 billion program. No further details on the amount.

But last year, the oil and gas producer was re-issued two series GMTN with total amount $1.5 billion. Series A have tenure 10 years with coupon rate 3.65 percent, while Series B is 30 years with an interest rate of 4.7 percent.

For the new issuances, Moody’s Investor Services has assigned a Baa2 rating to the proposed senior unsecured US Dollar notes to be issued by the state-owned company. The ratings outlook is stable.

According to Vikas Halan, a Moody’s SVP, the issuer rating reflects its strategically important position as Indonesia’ (Baa2 stable) national integrated oil and gas company, contributing significant upstream production, and accounting for substantially all of the country’ refineries, fuel marketing stations and gas pipelines.

At the same time, the rating also takes into account Pertamina‘ exposure to an evolving regulatory environment in Indonesia, and a high degree of execution risk associated with its sizable investment plan.

The Baa2 issuer rating also incorporates Moody’s expectation of the very high likelihood of extraordinary support from the Government of Indonesia to the state enterprises in times of need, and very high interdependence between the two parties.

Moody’s support assessment is based on the oil and gas holding strategic importance, given its important role in oil and gas exploration, petroleum product distribution and gas distribution in the country, as well as the government’ close supervision of its strategies and budget.

In 2018, the government agreed to reimburse Pertamina for the revenue shortfall arising from the difference between the stated-regulated sale price and market-linked price for specific types of fuel. However, these reimbursements are not immediately accretive to cash inflow because they will be paid by installments on a deferred basis starting in 2020.

As of Sept. 30, 2019, the company had $5.3 billion of receivables from the government as against $2.2 billion as of Dec. 31, 2017. The increase is largely on account of a delay in the receipt of compensation from the government for selling certain petroleum products at subsidized prices.

“Pertamina expects to start receiving compensation from the government in installments from this year, which will improve its cash flows,” says Halan.

Moody’s expects Pertamina‘ capital spending over the next 3 years to average around $7 billion annually as against $3 billion over the last three years. The increase in capital spending will be driven by the company’ plan to increase in refining capacity and efficiency.

Also, the producer will start spending in development of new oil  and gas that has been awarded by the government in 2018 and 2019. This will result in increase in its total borrowings. Consequently, Moody’s estimates that the producer’ retained cash flow to net debt will deteriorate to 27 – 28 percent from about 38 percent for the 12 months ended September 2019 but will still remain supportive of its ratings.

However, any delay in the disbursement by the government or continued price-freeze will result in further deterioration in Pertamina‘ credit metrics. But currently, the company has strong liquidity, with cash and cash equivalent of $8.1 billion as against debt maturing over next 12 months of $2.5 billion.

The outlook on the firm’ ratings is stable, reflecting the stable outlook for Indonesia’ sovereign rating, as well as Moody’s expectation that Pertamina will manage its capital expenditure program, such that its financial metrics will remain supportive of its BCA.

Pertamina is a 100 percent Indonesian government-owned, fully-integrated oil and gas corporation, with operations in upstream exploration and production, gas transmission and distribution, and downstream refining and marketing.

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