Indonesia has launched a new round of bidding for 18 oil and gas blocks located in the eastern region amid initiatives to streamline regulatory norms that have put off investments in the country's upstream sector.

The Energy and Mineral Resources Ministry's oil and gas directorate general said in a notification, issued Sept. 16, that “it invites interested companies with sufficient financial and technical capabilities” for exploration and development of 18 concessions located in East Java, East Kalimantan, South Sulawesi, and Makasar Strait. It has offered 16 blocks in direct proposal tender, and the remaining two are in regular tender route.

Concessions offered through direct proposal tender are: Palmerah Baru (onshore Sumatra Selatan and Jambi sub-basin), Sakti (offshore Jawa Tengah and Jawa Timur), North Madura II (offshore Jawa Timur), Northeast Madura VI (offshore Jawa Timur), Anugerah (offshore Jawa Timur), and East Bontang (onshore and offshore Kalimantan Timur).

The list also includes North Adang (offshore Makasar Strait), South Sulawesi I (offshore Sulawesi Barat and Selatan), South Sulawesi II (offshore Sulawesi Selatan), Southeast Sulawesi I (offshore Sulawesi Tenggara and Tengah), Southeast Sulawesi II (offshore Sulawesi Tenggara), West Abadi (offshore Maluku), Yamdena (offshore Maluku), South Aru (offshore Maluku), Bird’s Head (offshore Papua Barat), and Merauke (onshore Papua).

Two oil and gas blocks offered through regular tender are: East Seringapatam (offshore East Nusa Tenggara) and East Abadi (offshore Maluku).

The last date for submission of bids is Jan. 27, 2014.

The blocks offered in the current bidding are located in hydrocarbons-rich eastern Indonesia. The geophysical surveys carried out by the energy ministry reveal that sedimentary rocks in this region are older and thicker compared to those in western Indonesia. The discoveries made in the Seram and Salawati basins in eastern Indonesia have shown proven plays of significant size.

The energy ministry’s Geological Agency suggests that the eastern parts of Indonesia have 174 Tcf of gas potential and 86 Bbbl of oil potential.

Out of the 127 oil and gas basins, Indonesia has exploited oil and gas reserves only from 38 basins. Most of the exploration activity and production is confined to basins in western Indonesia, mainly onshore and offshore fields in central Sumatra and East Kalimantan.

Authorities Initiate Reforms

The blocks are being offered along with an initiative to reform the regulations for the upstream sector in the country.

After the arrest of the upstream regulatory authority’s (SKKMIGAS) chief over bribery allegations, the country’s coordinating ministry for economic affairs is working overtime to simplify regulatory norms that have discouraged the participation from global companies in exploration and development of oil and gas blocks in Indonesia.

Economic Affairs Minister Hatta Rajasa said a new policy is being formulated to simplify the licensing procedures for the upstream sector. “We can remove several of the 69 permits and categorize the rest into only eight groups,” the minister told The Jakarta Post last week. “For instance, the train passing permit, river passing permit, lake passing permit, and other similar permits, could be grouped into one.”

The central government also is pushing service-level agreements between the ministries to speed up clearances required for the exploration and development of oil and gas blocks, minister said. “This must be done because issues surrounding permissions has been one of the greatest complaints from the investors,” Hatta said.

The new policy, according to the minister, would provide a one-roof license procurement service for the oil and gas industry.

President Susilo Bambang Yudhoyono also has assured the industry that his government would minimize the licenses needed for exploration and development of oil and gas blocks. He directed the chairman of the Indonesia Investment Coordinating Board and the coordinating minister for economic affairs to streamline regulations on license, permit, and approval processes to create a more enabling business environment. He also directed the minister of energy and mineral resources, the head of SKKMIGAS, and the finance minister to design attractive incentive schemes to boost investment, particularly in exploration activities.

The energy ministry allayed fears developed after the dissolution of regulatory authority BP MIGAS and the suggestion of promoting companies to extract hydrocarbon resources by a constitutional court in November 2012. Yudhoyono swiftly issued a decree (PR 95/2012), which provisionally transferred the powers and responsibilities of BP MIGAS to the Indonesian Ministry of Energy and Mineral Resources and declared that all production-sharing contracts that had been entered by BPMIGAS would remain valid until their expiry. The president also stated that the government would begin drafting a new oil and gas law to further ensure legal certainty in the oil and gas sector.

Investors, however, are cautious, waiting for the final outcome of these initiatives.

Global Firms’ Role Is Crucial

Global oil and gas companies are not showing interest in Indonesia and don’t consider it a destination for investment. They cite the problems like legal uncertainty, the long list of permits, approval delays, high taxation, and the state’s greater share in produce for the lack of interest.

The bidding rounds launched in the last couple of years had not received response from big companies. The Indonesian authority managed to award only 21 of the 43 blocks offered in 2009, 10 of the 36 blocks offered in 2011, and 24 of the 42 blocks offered in 2012. Premier Oil, Inpex, Mubadala (UAE), Cooper Energy, Salamander Energy, and Conrad Petroleum, were the only global companies that bagged six concessions in 2012 round.

As a result, the crude oil production in Indonesia has witnessed a record fall. Crude oil production was 830,000 b/d in 2012, down from 1.6 MMb/d in 1995. The aging of producing oil fields, slower replacement rate, and decreased exploration investment have mainly led to fall in production.

Indonesia has become a net importer of oil, getting oil from neighboring countries to meet rising local demand.

Investments from global companies are needed to reverse the trend. The global companies’ technology and financial resources would not only help tap the country’s large potential hydrocarbon resources, particularly in frontier and deepwater areas, but also make production sustainable and sufficient to meet the growing demand for oil and gas. Higher production levels would bring in the additional financial resources required to stimulate the economy.

Competitive and investor-friendly policies would encourage investments from global companies and help realize the potential oil and gas resources in the Indonesia, which has an estimated 3.9 Bbbl of proven oil reserves.