CLSA INDO: PGAS update

Concerns on PGas and where it stands?, comment from Swati
There have been recent concerns about decrease in volumes from Conoco Philips.
Why that happened?
BP Migas who has the authority to allocate gas directed Conoco Philips to increase gas allocation to Chevron. Conoco Philips obviously happily agreed since Chevron is paying much more than PGas which is paying just US$1.85/mmbtu, lowest among all its gas suppliers.
Now there has been a lot of backlash to BP Migas as PGas is not being delivered its contracted gas supply and there is a large shortage of gas faced by industries and power plants. Chevron has been asked to increase oil production and therefore there they need more gas.

What is Conoco Philips gas supply from South Sumatera field?
Conoco Philips is producing a total of 1000mmscfd of which it is delivering about 250-330mmscfd to PGas (flow rate is fluctuating), 400mmscfd to Chevron and the rest to Singapore Power. It is also possible that gas supply to Singapore Power will be diverted to PGas.

What will PGas do?
PGas is assessing their legal course of action against Conoco Phillips but this will be last resort. PGas believes it should be able to get its volumes back. It will not just sit quite. We should get more updates in next few weeks.

In the meantime..
What about industry gas supply?
Industry gas allocation will not be reduced. Gas supply to PLN will be lowered.
Industries will not have to take 20% reduction in volumes but if any company wants more than its current contracted volumes then it will pay to pay US$15/mmbtu in some areas and US$8/mmbtu in others. Current gas prices are US$5.5/mmbtu.
There will still be 10-15% blanket price increases and we can expect a selling price of US$6.5/mmbtu for gas (average could be higher since some customers will be paying substantially higher).
Higher than forecasted gas prices should compensate partly for lower volumes from Conoco Philips (if it is not recoverable).

What about new gas?
The significant shortage of gas now will mean that PGas should get a green signal for those gas reserves which has small amount of gas like 30-40mmscfd. Several of these gas reserves have not been fully tapped and some of these are close to PGas pipelines. These can be accessed within six months if approved. This means PGas future gas volumes will increase.