Talisman’s Indonesian assets include onshore interests in production sharing contracts (‘‘PSCs’’) at Corridor, Ogan Komering and Jambi Merang in South Sumatra. In addition, Talisman has an offshore interest in the Tangguh LNG project in West Papua. Talisman also holds exploration acreage, including Andaman III in North Sumatra and is party to two Joint Study Agreements for areas in South Sumatra. Talisman also has an indirect, 6% interest in the Grissik-to-Duri pipeline and the Grissik-to-Singapore pipeline which is used to transport gas from the Corridor PSC.
In May 2013, Talisman completed the sale of its interest in its Offshore Northwest Java (‘‘ONWJ’’) PSC to PT Pertamina Hulu Energi ONWJ. Also, in December 2013, Talisman entered into an agreement to dispose of its 7.5% interest in the Southeast Sumatra PSC to PT Pertamina Energi SES subject to government approval which is expected in 2014. In the Makassar Straits, Talisman relinquished its interest in the Pasangkayu PSC in April 2013 and has notified the government of its intent to exit the remaining four PSCs in the Makassar Straits with government approvals expected in 2014. In December 2013, Talisman entered into an agreement to acquire a 90% interest and operatorship of Sakakemang PSC, located in South Sumatra, adjacent to the Corridor PSC and Jambi Merang PSC. Government approval is expected to be received during the first quarter of 2014.
In the Corridor PSC, Talisman has a 36% non-operated interest in all but two of the producing fields, the exceptions being the Gelam and Suban fields which are unitized with adjoining blocks, with Talisman’s unit interests in such fields being 30.96% and 32.4%, respectively.
The majority of Talisman’s natural gas production from the Corridor block is currently sold under long-term sales agreements with PT Chevron Pacific Indonesia (‘‘Chevron’’), Gas Supply Pte. Ltd. (‘‘GSPL’’) and PT Perusahaan Gas Negara (Persero), Tbk. (‘‘PGN’’). Gas sales commenced with first production from Corridor in 1998 pursuant to a gas-to-oil exchange agreement with Chevron at the Duri oilfield. These volumes were increased pursuant to another gas-to-oil exchange agreement signed with Chevron in 2000. In May 2010, the two gas-to-oil exchange agreements with Chevron were converted to agreements whereby the gas is now sold for cash consideration, with approximately 500 bcf gross of gas sales volumes added to all project participants under the 2000 gas sales agreement. Gas sales commenced in September 2003 to GSPL under the terms of a 20-year gas sales agreement. The sale of gas to PGN, made pursuant to a 17-year gas sales agreement, began at 51 mmcf/d gross sales gas from Corridor in 2007 and averaged 385 mmcf/d gross sales gas in 2013.
Gas sales from Corridor to PGN for their markets in West Java are sold under a long term contract with no associated transportation costs. The volume commitment based on daily contract quantity is approximately 466 bcf (net) over the remaining ten years life of the contract (2014-2023). A second amendment to the agreement was reached with PGN to increase the contract price for the sale of Corridor gas under the PGN West Java Gas Sales Agreement. Under this amendment, the gas price is increased in stages from $1.85/mmbtu to: (a) $4.36/mmbtu effective September 2012 until March 31, 2013; and (b) $5.44/mmbtu effective April 1, 2013 for gas sales up to maximum daily quantity (‘‘MDQ’’) level and $6.41/mmbtu for each mmbtu beyond this level. A third amendment was executed in April 2013 to further increase the gas price up to MDQ level to $6.50/mmbtu on and from January 1, 2014 with escalation of 3.90% per annum every January 1 from 2015 until 2017 and 4.30% from 2018 to 2023. For each mmbtu beyond MDQ, the price would be $7.66/mmbtu with the same escalation percentage. Implementation of the third amendment is, however, contingent upon the approval of the Minister of Energy and Mineral Resources, which is in progress.
In 2013, net production from the Corridor PSC was approximately 58 mboe/d. Corridor production accounted for approximately 45% of Talisman’s Southeast Asia production. During 2013, the Corridor PSC brought three projects onstream through facility upgrades and tie-in work. The Letang Tengah Rawa Optimization project came onstream in May 2013, adding 16 mmcf/d net to the premium priced Chevron gas sales contract. The Sumpal expansion project, which includes a well and doubling processing capacity at the Sumpal facility, came onstream in November 2013. The early compression project at the Dayung field increased net sales gas production to approximately 50 mmcf/d and the second phase of the project has increased gross raw facility capacity at the Grissik Central Gas Plant from 310 mmcf/d to 460 mmcf/d.
In 2010, Talisman acquired a 25% interest in the Jambi Merang PSC and the field came onstream in 2011. In 2013, production averaged 6 mboe/d net to Talisman. Talisman plans to sanction the Jambi Merang Phase 2 project in 2014, which will expand the current gas plant capacity and allow the production of additional liquids.
Talisman’s share of production from the Tangguh LNG project contributed 5 mboe/d in 2013.
Talisman participated in 14 development, five exploration and two appraisal wells in 2013.
In 2014, the Company’s activities in Indonesia will continue to focus primarily on South Sumatra, and Talisman expects to participate in six development, two exploration and one appraisal well in 2014.