Indonesia awards exploration rights for gas, oil blocks

Indonesia has awarded five oil and natural gas blocks to several companies, aiming to increase oil and gas reserves and to lift dwindling production.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Sept. 21 -- Indonesia has awarded five oil and natural gas blocks to several companies, aiming to increase oil and gas reserves and to lift dwindling production.

"The companies will drill three exploration wells. We believe those areas have hydrocarbon potential," said Evita Legowo, director general oil and gas at the ministry of energy. A total investment of $91.5 million has been committed for the projects in the first 3 years.

Indonesia awarded exploration rights to Talisman Energy Inc. for Andaman III block off North Sumatra, while Indonesia’s state-owned PT Pertamina and Malaysia's Petronas won exploration rights to West Glagah Kambuna, off North Sumatra.

A consortium comprised of Niko Resources and Black Gold Energy won rights to the three remaining blocks: Halmahera Kofiau, off South Halmahera; East Bula, off of Seram; and West Papua IV, off of Papua.

Indonesia has been offering exploration rights and financial incentives for oil fields in a bid to stem a steady decline in production, but this year’s efforts have not been entirely successful.

Officials said Indonesia failed to attract enough investors to develop all the blocks offered in this year’s first quarter due to the global economic slowdown and concerns over revisions to the cost recovery mechanism.

Of the 16 oil and gas blocks offered between December 2008 and April of this year, only five blocks won developers, according to the final results of the bidding process announced Sept. 11 in Jakarta.

Should the situation persist, the government will be in serious trouble due to its inability to meet oil production targets amid soaring demand that has already made Indonesia a net importer of oil and oil products.

“This is very bad, but this is the fact. If the situation remains like this, my objective to maintain national oil production at about one million b/d cannot be achieved,” said Legowo.

Legowo cited two main factors hampering investors’ interests in bidding for the blocks: the global liquidity crisis and the government’s plan to revise the cost recovery mechanism.

Indonesia has turned into a net oil importer in recent years as production has dropped due to the failure to tap new fields fast enough. Indonesia also is Asia's largest importer of oil products, with Pertamina's nine refineries able to supply less than 70% of domestic oil product consumption.

Due the lack of refining capacity, a Pertamina official earlier this month said the state firm expects the country’s gasoline imports to more than double from existing levels by 2017.

The official, who spoke on condition of anonymity, warned that annual domestic gasoline consumption would climb to 192.7 million bbl in 2017, from a forecast 123.8 million bbl in 2009.

He said Indonesia's refineries can only produce 68.5 million bbl/year of gasoline, so imports would have to rise to 124.2 million bbl in 2017, from 55.3 million bbl in 2009.

"If Indonesia wants to cut gasoline imports, it must build new refineries as quickly as it can," the official said.

Meanwhile, Pertamina said it expects to import about 5.6 million bbl of gasoline and 3.6 million bbl of diesel in October, down slightly from the figures for September.

The state firm earlier said it planned to import 5.8 million bbl of gasoline, and 3-4 million bbl of diesel in September in an effort to boost supplies for the the Muslima holidays of Ramadan and Eid al-Fitr.

Eid al-Fitr, which marks the end of Ramadan, takes place from Sept. 21-22.

Agustiawan also said the company currently has 20.9 days of gasoline stocks and 25 days diesel stocks.

“We will secure domestic oil products supply, especially during Ramadan and Eid al-Fitr,” said Karen Agustiawan, Pertamina's president director, who added that “Gasoline and diesel imports are expected to be normal in October."

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