T

he government launched an open bid for oil-and-gas exploration rights of shale blocks on Monday, the first since the issuance of a new regulation on the development of non-conventional oil-and-gas blocks.

The Energy and Mineral Resources Ministry'€™s oil-and-gas director general, IGN Wiratmaja Puja, said three non-conventional shale blocks would be up for grabs. They are: the MNK Blora located in Central and East Java, the MNK Batu Ampar in East Kalimantan and the MNK Central Bangkanai in Central and East Kalimantan. Access to the bid'€™s documents would be made available online until mid-December. '€œThe open bids are the first to be held under a new regulation regarding non-conventional blocks,'€ Wiratmaja said.

He was referring to a ministerial regulation passed by the ministry currently in the process of being finalized at the Law and Human Rights Ministry. The regulation is expected to encourage investment in non-conventional oil-and-gas potential in the country, including in shale and coal-bed methane, the exploration of which is presently sluggish due to unfavorable regulations. Explorations have also been slowing down due to the decline in the world oil price, forcing companies to re-consider new projects.

The new regulation will allow contractors to choose one of three contract options, according to the director of the oil-and-gas office, Djoko Siswanto. The options are production sharing contracts (PSC) similar to those currently being implemented at all oil-and-gas blocks and use a net PSC sliding scale and gross split sliding scale. The gross split sliding scale is expected to incorporate a no cost-recovery mechanism and the split in production between the government and contractors will be increased progressively depending on the volume of production.

'€œThe contractors'€™ portion will be bigger than the government'€™s until an investment payback period. Afterwards, it will be a sliding scale in which the government'€™s portion gets bigger,'€ Djoko said.

Figures from the oil-and-gas office revealed that under the net PSC sliding scale, the split for the government could start as low as one percent if the production was lower than one billion cubic feet (BCF). The split for the government would be increased in line with the increase in production. When production reached more than 100 BCF, the government'€™s split would reach 25 percent and the contractors would be entitled to the remaining 75 percent. The 25:75 split is also the standard figure of a PSC for non-conventional blocks under the regulation.

Meanwhile in the gross PSC sliding scale, the split for the government starts at 5 percent when the production is lower than 5 bcf. The figure is then progressively increased.

The country is estimated to have significant CBM reserves of up to 453 trillion cubic feet (tcf). Since 2008, the government has awarded 54 working areas to be developed, mostly in Sumatra and Kalimantan. However to date, production remains below 1 million standard cubic feet per day (mmscfd).

Five shale gas block projects have also been awarded exploratory concessions. However, the projects remain in the exploration stage. The country'€™s shale potential is estimated at around 575 tcf