Indonesia opens 24 oil, gas blocks for bidding

The Indonesian government, seeking international investment to boost the country’s falling output of oil, has released 24 new oil and gas blocks for exploration and production contracts.

Jun 18th, 2009

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, June 18 -- The Indonesian government, seeking international investment to boost the country’s falling output of oil, has released 24 new oil and gas blocks for exploration and production contracts.

Evita Legowo, director general at Indonesia's energy ministry, said 17 of the blocks will be offered through tenders, while the remaining 7 blocks will be offered directly. Proposals for direct appointments will be accepted until July 30 and tender bids may be submitted until Oct. 13.

The 17 blocks offered under regular tender include: Tomini Bay I-V; Gorontalo Tomini I-II; North Bone; Kolaka Lasusua; Kabena; Jampea; Buton III; Menui Asera; Morowali; Sula I-II, and Bird’s Head. The 7 blocks offered directly include: Kubu; North East Ogan Komering, Offshore West Java; Blora; North Makassar strait, East Simenggaris; and Digul.

According to Legowo, the government expects to earn at least $56.5 million in signing bonuses from the 24 new oil and gas blocks, with a different minimum signing bonus for each block, depending on the size of potential reserves.

“If the early survey found the indication that the blocks have big reserves, then government sets a higher minimum signing bonus,” said Legowo, who added that minimum signing bonuses range from $1 million to $5 million.

The Tomini Bay I-V and Gorontalo Tomini I-II blocks stand out as the most expensive, with the highest minimum signing bonus of $5 million on each of them due to their potentially high reserves of oil or gas.

“We set the highest minimum signing bonus for these blocks, because the areas are very promising,” Legowo said. “We estimate the blocks contain huge reserves, especially gas reserves.”

According to analyst Global Insight, “the [Indonesian] government recently put proven and probable reserves of oil and gas at 8.2 billion bbl and 170 tcf respectively, which suggests the results of exploration could be positive.”

Most of the blocks offered are in the eastern part of Indonesia, and Legowo said the government asked for a lower production split for those blocks due to the higher costs involved.

“The split is 65% for the government and 35% for contractors,” said Legowo, who noted that the government normally takes between 80-85%.

The reduced government share should be seen as an incentive for oil and gas companies to operate in the more difficult conditions in eastern part of Indonesia, Legowo said.

According to Edy Hermantoro, director of oil and gas upstream watchdog BPMigas, the average drilling cost for a wildcat well offshore eastern Indonesia can reach $40-50 million, while in western Indonesia the cost is $7-8 million.

The release of the 24 blocks coincides with government efforts to boost oil output in the face of a recent downward trend over the past 5 years.

Jakarta has set a production target of 960,000 b/d for this year, but as of April, production has been slightly lower at 956,000 b/d, Legowo said.

The 24 Blocks and their locations are: Kubu, off central Sumatra; Gorontalo Tomini I, off North Sulawesi; West Java, off West Java; Gorontalo Tomini II, off North Sulawesi; North East Ogan Komering, onshore South Sumatra; North Bone, off South Sulawesi; Blora Block, onshore Central Java; Kolaka Lususua, off South Sulawesi; North Makassar, off Makassar Strait; Kabena, off South Sulawesi; East Simenggaris, off East Kalimantan; Jampea, off South Sulawesi; Digul, onshore Papua Province; Buton III, off South Sulawesi; Tomini Bay I, off Tomini Bay; North Sulawesi Menui Asera, off South-East Sulawesi; Tomini Bay II, off Tomini Bay; North Sulawesi Morowali, off South-East Sulawesi; Tomini Bay III, off Tomini Bay; North Sulawesi Sula I, off Moluccas; Tomini Bay IV, off Tomini Bay; North Sulawesi Sula II, off Moluccas; Tomini Bay V, off Tomini Bay; and North Sulawesi Bird's Head, off West Papua Province.

Contact Eric Watkins at hippalus@yahoo.com.

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