Indonesia is offering 15 conventional and unconventional oil and gas blocks to potential bidders, government officials said on May 19, hoping more flexible terms will help reverse flagging interest in the sector after lackluster performance in 2016.
This year the government is applying new production-sharing rules and will revise rules on recoverable costs and cut import duties on exploration equipment where possible, said deputy energy minister Arcandra Tahar. The changes are among the efforts to incentivize new investment.
“If you can show us in your analysis and data that the split is not good enough, let’s talk,” Tahar said, promising to listen more closely to investors. “If the result is not enough, we have 5% discretion from the minister. If that's still not enough, now we have a problem.”
The latest offer includes 10 conventional blocks and five unconventional oil and gas blocks, and all will be offered under a gross split production sharing contract scheme, Wiratmaja Puja, director general of oil and gas told reporters.
Unlike the conventional pools of oil and natural gas, unconventional oil and natural gas do not flow naturally through the rock, making them much more difficult to produce.
Details of the offer are:
- Conventional oil and gas blocks (regular bids): Tongkol (East Natuna Basin), East Tanimbar (Maluku) and Memberamo (Papua);
- Conventional oil and gas blocks (direct offers): Andaman I, Andaman II, South Tuna (Riau island), Merak (Banten and Lampung), Pekawai (East Kalimantan), West Yamdena (Maluku) and Kasuri III (West Papua);
- Unconventional oil and gas blocks, shale gas: Jambi and Jambi II; and
- Coalbed methane blocks: Raja (South Sumatra), Bungamas (South Sumatra) and West Air Komering (South Sumatra).
Indonesia offered a total of 17 oil and gas blocks last year, according to Tunggal, Indonesia’s upstream oil and gas director.
“There were lots of bids, but because of evaluations in the end there was only one winner,” he said.
Thin interest in the 2016 tender was a result of low oil prices, among other factors, said Tahar, who denied that Indonesia was unattractive to energy investors.
“It wasn’t the (investment) climate, but there was a combination of what investors' strategies were like (and) oil prices were down,” Tahar told reporters, noting that the recently introduced gross split mechanism had not proven to be more or less attractive yet.
“In fact we are now more open to change things that never used to be changed. We have opened everything now," he added. “When oil prices pick up (investment) doesn’t necessarily go up. It’s slow; there’s a lag.”
But industry participants were less enthusiastic about the latest offer and said more work is still needed to make Indonesia attractive.
“In Indonesia at the moment, the returns are difficult, the time to get a return is too long, and the risk of political involvement is quite high,” said Andrew Harwood, director of Asia Pacific upstream oil and gas research at Wood Mackenzie.
“So it’s difficult for Indonesia at the current stage to get the gross split to be attractive against other opportunities oil and gas companies have elsewhere,” he said referring to opportunities in the Gulf of Mexico, Africa, Europe and Australia.
The sentiment was shared by oil company executives.
“Indonesia is less economically competitive than other countries,” said one executive at an international oil company operating in Indonesia, speaking on condition of anonymity because of the sensitivity of the matter. “Production is going down in oil and gas, while a lot of countries are increasing, so I think that says it all.”
Despite President Joko Widodo’s efforts to improve the ease of doing business for energy investors in Indonesia, there is “still much more work to do,” he said.
Countries that have traditionally done a very good job in attracting capital from energy investors were those that provided competitive fiscal terms, contract sanctity and a stable regulatory regime, he said.
“Indonesia has to compete well for capital or they’ll go somewhere else.”