Jurisdiction - Indonesia
Reports and Analysis
Indonesia – Onshore And Offshore Bid Round Announced.

3 June, 2013

 

 

The Ministry of Energy & Mineral Resources has announced that 21 onshore and offshore blocks will be offered to potential investors through direct proposals and regular tenders.

 

The offer

 

The bid round is predicated on a combination of (1) direct proposals (where a company that wishes to acquire a certain block may express its interest to the Government of Indonesia ("GOI"), and following the opening of the block to other bids, is provided with a right to match the most favourable bid) and (2) regular tenders (where interested companies are required to purchase bid documents regarding a block including the draft product sharing contract and subsequently to submit bids to the GOI).

 

Of the 21 blocks on offer, 19 are conventional and two are unconventional. Sixteen of the conventional blocks are being offered by direct proposal and the remaining three are being offered under the regular tender process. The two unconventional blocks are being offered by direct proposal.

 

Edy Hermantoro of the Ministry of Energy & Mineral Resources estimates that the total area being offered contains up to 3.1 billion barrels of oil and 57.6 trillion cubic feet of gas.

 

Blocks located in areas of low risk potential will require a commitment to drill an exploration well within the first three-year exploration phase. In very high-risk frontier areas, no firm commitment to drill will be required unless there is sufficient existing data available to allow drilling to proceed immediately. Upstream, the international oil and gas newspaper, indicates that the three blocks being offered under regular tender are located in the frontier areas namely, the Sumba Sawu, East Seringapatam and East Abadi blocks.

 

As for the terms of the product sharing contract, there is currently no indication as to whether the GOI will use templates which have been used in previous bidding rounds.

 

Block details

 

1. 19 Conventional Blocks 

 

Block

Location

Method of offer

Palmerah Baru

Onshore in Jambi , South Sumatra

Direct proposal

Sakti

Off the north coast of Central Java and East Java

Direct proposal

North Madura II

Off the north coast of Madura Island

Direct proposal

North East Madura VI

Off the north coast of Madura Island

Direct proposal

Anugerah

Off the East Java coast

Direct proposal

East Bontang

Onshore and offshore East Kalimantan (home of the largest gas producer in Indonesia, Total E&P Indonesia)

Direct proposal

North Adang

Makassar Strait

Direct proposal

South Sulawesi I

Onshore and offshore Sulawesi Island

Direct proposal

South Sulawesi II

Onshore and offshore Sulawesi Island

Direct proposal

South East Sulawesi I

Off Sulawesi Island

Direct proposal

South East Sulawesi II

Off Sulawesi Island

Direct proposal

West Abadi

Off South Maluku Island

Direct proposal

Yamdena

Off South Maluku Island

Direct proposal

South Aru

Onshore and offshore Aru Island in Maluku

Direct proposal

Bird’s Head

Off  the north coast of West Papua

Direct proposal

Merauke

Onshore in Merauke, Papua

Direct proposal

Sumba Sawu

Off Sumba Island in East Nusa Tenggara (comprising of two offshore areas)

Regular tender

East Seringapatam

Off Sumba Island in East Nusa Tenggara

Regular tender

East Abadi

Off South Maluku Island

Regular tender

 

2. Two unconventional blocks

 

Block

Location

Method of offer

Barumun

Onshore in North Sumatra and Riau

Direct proposal

West Janjung

Onshore in Central Kalimantan

Direct proposal

 

The current Indonesian oil and gas market

 

Whilst energy demand in Indonesia is expanding, Indonesia is struggling to reverse the decline in oil and gas production. The U.S. Energy Information Administration (EIA) has stated that the country will struggle to meet production targets in the short term. Indonesia's oil output has fallen to around 830,000 barrels a day which is nearly half the levels seen in the 1990s. Further, its gas output has fallen to around 8.2 billion cubic feet a day last year which is a decrease of around 12% from output levels in 2010.

 

Nevertheless, it is anticipated that Indonesia will continue to be a significant and well-established player in the international oil and gas industry. The GOI aims to produce 1.01 million barrels of crude oil per day (bpd) in 2014. A number of international oil and gas companies continue to play an important role in developing Indonesia's oil and gas potential including Chevron who have an interest in the Rokan and Siak product sharing contracts in Riau, Sumatra; ExxonMobil who have an interest in the Natuna block; and Shell who have an interest in Indonesia's gas-rich Masela block. Furthermore, on 15 May 2013, PT Pertamina signed a 30-year contract on Indonesia's first shale gas concession. The production sharing contract covers the Sumbagut block in North Sumatra which Pertamina estimates holds 18.56 trillion cubic feet of shale gas potential.

 

Outlook

 

Lukman Mahfoedz, president of the Indonesia Petroleum Association has previously stated that most offshore blocks will require overseas investors to carry out exploration works. He stated that the participation of international oil companies is required as "national companies cannot cover the risks in the deepwater drilling in eastern Indonesia, where one well costs $200million".

 

As noted in our previous e-bulletin, there have been some changes in the regulatory environment in this sector. The legal/regulatory uncertainty and aging infrastructure and oil fields in Indonesia remain key concerns for international investors in the sector.

 

The first round of bidding is scheduled to begin in mid-June.

 

 
For further information, please contact:
 
David Dawborn, Partner, Herbert Smith Freehills
david.dawborn@hsf.com
 
Bryan Scott, Partner, Herbert Smith Freehills
brian.scott@hsf.com

 

Richard Nelson, Partner, Herbert Smith Freehills
richard.nelson@hsf.com

 

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