INDONESIAN E&D ACTION SETS BLISTERING PACE

Exploration and development action in Indonesia is setting a blistering pace.

Several indicators of E&D activity reached record levels in 1990 and are expected to match or surpass those levels in 1991, says the U.S. Embassy in Indonesia.

As evidence of that, state oil company Pertamina in recent weeks has signed six more production sharing contracts (PSCs) with private companies, covering at least $154 million in outlays for exploration during initial 6-10 exploration periods. The six contracts cover a combined 43,700 sq km.

Other indicators point to Indonesia's growing emphasis on natural gas for domestic use to back out crude oil for export and for export as liquefied natural gas.

Meanwhile, Pertamina projects Indonesian revenues from oil and gas sales are expected to fall by about 15% in fiscal 1990-91.

INCENTIVES SPARK INTEREST

The U.S. embassy said in its annual petroleum report, "Never has the interest to explore for oil in Indonesia been greater, at least in terms of the number of foreign oil companies seeking new exploration areas."

Exploration of a record 100 prospects is under way by multinational companies under PSCs with Pertamina. Of those, 57 PSCs were signed in 1987-91.

The embassy cited sweetened terms and other incentives spurring the heightened interest include:

• Sale of oil production at realistic market prices.

• Greater autonomy for PSC contractors during initial exploration.

• Improved procurement procedures.

• Better terms for marginal and higher risk exploration.

• Incentives for enhanced oil recovery projects.

• Postponement of the value added tax on certain exploration outlays.

• Negotiation of gas prices between producer and consumer in supply contracts vs. previously government decreed terms.

E&D ACTION

Indonesian E&D outlays in 1990 jumped 50% to $1.3 billion in 1990 from the previous year, the embassy said.

Seismic data acquired covered more than 84,000 line km, more than double the annual average the past 15 years.

Exploratory drilling jumped almost 15% to 123 wells in 1990. That breaks out to 64 appraisal wells-the most since 1986-and 50 wildcats. Although the number of wildcats was the lowest in 20 years, 31 yielded oil or gas discoveries, an unusually high wildcat success ratio for Indonesia.

The embassy sees E&D activity remaining at high levels through 1991, with oil companies earmarking $2.27 billion for upstream outlays for the year. That's a jump of 80% from what industry spent and 70% from what it budgeted in 1990.

The embassy expects Indonesian oil production to climb 1 0% in 1991 but possibly decline in 1992-93 before rebounding after mid-1993, when current and new development projects are to come on stream.

Pertamina hiked its projection of Indonesian production in fiscal 1991-92 to 1.63 million b/d from an earlier estimate of 1.53 million b/d. The state company estimates production then will drop to 1.58 million b/d in fiscal 1992-93.

PSC DETAILS

The largest commitment among the latest round of PSC awards came from subsidiaries of Chevron Corp. and Texaco Inc.

Texaco Exploration Kalumpang Inc. and Chevron International Kalumpang Ltd. agreed to spend at least $40 million this decade on the 8,043 sq km Kalumpang block onshore and off South Sulawesi. Amoseas Indonesia Inc., a jointly owned affiliate of Texaco and Chevron, will operate the Kalumpang block. Texaco Kalumpang and Chevron Kalumpang each own a 50% interest in the block.

The Kalumpang PSC represents the third block awarded this year and the third frontier tract awarded the past 2 years to the Chevron and Texaco subsidiaries.

In other PSCS:

• Atlantic Richfield Kalosi Ltd. agreed to spend at least $32.5 million in 10 years exploring Kalosi block, an 11,038 sq km tract in South Sulawesi.

• Hunt International Petroleum Co. (Indonesia) will spend more than $30 million in 10 years exploring Padang Panjang block in western Sumatra.

• PT Petronusa Bumibakti will spend at least $19 million during 10 years exploring Selat Panjang block, a 3,785 sq km tract in Riau province, Sumatra.

• Marathon Petroleum Tiram Ltd. agreed to spend $17.2 million during 6 years exploring Tiram block in the West Natuna Sea about 750 miles north of Jakarta (OGJ, Oct. 7, p. 47). Marathon's latest PSC grants Indonesian company PT Dwinusa Arthamandiri an option to acquire a 10% interest in the Tiram block. Marathon's Tiram PSC area is on trend with KH and KF fields in the adjacent Kakap block. The two fields, with Marathon as operator, produce more than 29,000 b/d of oil.

• Bow Valley (Teso) Ltd. and partners agreed to spend $15.7 million the next 6 years to explore Teso block, a 10,360 sq km area in Riau province (OGJ, Sept. 23, p. 24). Operator Bow Valley owns a 40% interest in the tract, and Westcoast Petroleum Ltd. and Saskatchewan Oil & Gas Corp. each hold 30%. The group's exploration program will begin in mid-1992 with a 900 line km seismic survey.

PSC contractors agree to assume all exploration risk. Exploration costs under PSCs are recoverable only from commercial production. PSCs are extended to 30 years from the date of signing if commercial production is found.

Pertamina and PSC contractors agree to split 20% of production prior to deduction of cost recovery.

EXPORTS-IMPORTS

Indonesia's production climbed 4% to 1.462 million b/d in 1990, the U.S. embassy noted. However, increasing domestic consumption left volumes available for export at about 790,000 b/d, or flat with the prior 4-5 years.

At $6.3 billion, however, the value of Indonesia's oil exports rose almost 25% from the 1989 level.

The average export price of Indonesian crude oil jumped to $21.94/bbl from $17.31/bbl in 1989 in response to the loss of Iraqi and Kuwaiti exports during the Persian Gulf crisis.

Japan claimed 60% of Indonesia's crude exports in 1990, with its purchase of 172 million bbl accounting for 13% of its oil imports that year.

With Asia-Pacific demand for Indonesian oil on the rise, the U.S. share of Indonesia's oil exports fell to 43 million bbl in 1990, or less than 15% vs. 32% in 1985. South Korea was Indonesia's third biggest customer with 19 million bbl in 1990 oil imports, followed by Taiwan 16 million bbl and Singapore 10 million bbl.

GAS EMPHASIS

Indonesia's efforts to diversify energy use and exports away from oil helped spark a 9% increase in natural gas production to 2.2 tcf in 1990, the embassy said.

That compares with a 7.5%/year average growth rate since 1981. Sales accounted for 70% of gas production, with the remainder accounted for by reinjection, field use, and flaring.

Of total 1990 gas sales, 80% was exported in the form of 20.64 million tons of LNG to Japan, South Korea, and Taiwan.

That's a 10% jump from 1989, and a 36% spike in foreign exchange earnings from this sector to more than $4 billion.

Pertamina predicts LNG exports will jump to 22.5-23 million tons in 1991 and climb to 27 million tons in 1994 with the installation of a sixth train at the Bontang LNG complex. It is aiming for LNG exports of 30 million tons/year by 2010, a volume Pertamina says would be equal in export revenues to 675,000 b/d of Indonesian crude, or about 90% of 1990 net crude exports.

The government continues to press efforts to shift to gas domestically, targeting new users such as electrical power plants under development, notably on Java, and manufacturers fed by a growing gas grid supplying urban areas in Java and Sumatra.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.