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Government puts 26 oil and gas blocks up for auction
The Energy and Mineral Resources Ministry has officially put 26 oil and gas blocks up for auction in an effort to boost the country’s upstream sector, less than three weeks after the conclusion of the previous bidding round
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he Energy and Mineral Resources Ministry has officially put 26 oil and gas blocks up for auction in an effort to boost the country’s upstream sector, less than three weeks after the conclusion of the previous bidding round.
Winners of the auction will operate those blocks using the gross-split mechanism. It means the investors need to pay for the exploration and production costs instead of relying on the government’s reimbursement as seen under the previous cost recovery program.
“We hope we can find winners for at least 50 percent of the offered blocks,” Deputy Energy and Mineral Resources Minister Arcandra Tahar said on Monday.
Of the 26 blocks, 24 are conventional working areas and two are unconventional. Nineteen conventional areas can be bid for through the regular tender process, while seven others will go through the direct proposal mechanism.
The bid submission deadlines for direct proposal mechanism and regular tender are April 4 and June 19, respectively.
Among the conventional working areas offered in the current auction is the East Papua block. For this block, a contractor must pay a minimum signature bonus of US$500,000. The contractor must also be committed to undertaking a geological and geophysical (G&G) study and 2D seismic surveys covering 200 kilometers within the first three years of its contract.
There is also the North Kangean block in offshore East Java, which requires investors to pay a minimum signature bonus of $750,000 to the government. This block’s winner will then be obliged to conduct a G&G study and drill one exploration well.
Furthermore, the two unconventional working areas are the GMB Sumbagsel block in onshore South Sumatra and the MNK Sumut Tenggara block in onshore North Sumatra, each with a minimum signature bonus of $400,000 and $500,000, respectively.
For the GMB Sumbagsel block, the auction winner will have to conduct a G&G study, drill three core holes and two exploration wells, as well as undertake a production test. For the MNK Sumut Tenggara block, investors need to conduct a G&G study and drill one exploration well.
The Energy and Mineral Resources Ministry initially planned to offer up to 43 oil and gas blocks through this year’s auction. However, it eventually decided to put only 26 blocks up as they were considered the most ready, particularly in terms of the comprehensiveness of their seismic data.
Then, the ministry plans to complete the seismic data of other prospective blocks first before offering them through the second bidding round, expected to be held in August this year.
“We need to enrich our data first for the remaining [17 blocks]. We don’t want to hastily offer them to no avail because there are no investors interested,” said the ministry’s secretary-general, Ego Syahrial.
In last year’s auction, the ministry offered 15 blocks, for which bid submission took place from May to December. It eventually found winners for five blocks and announced it on Jan. 31.
Two of the five winners are global investors, namely United Arab Emirates-based Mubadala Petroleum and a consortium comprising United Kingdom-based Premier Oil Far East, Mubadala Petroleum and Singapore-based Kris Energy.
In total, the five winners of last year’s auction have committed $23.57 million in investment within the next three years to undertake various exploration activities as well as pay signature bonuses worth $3.25 million to the government. The ministry plans to sign the production sharing contract (PSC) with those winners by the first week of March.
The Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) has pinned high hopes on such an auction to boost exploration activities amid Indonesia’s plunging petroleum reserves. Official data shows that the amount of proven crude oil reserves in the country dropped to 3.3 billion barrels at the end of 2016 from 3.69 billion in 2013.
Following the upward trend in global crude prices, SKKMigas is optimistic about investment in the upstream oil and gas sector reaching $12.6 billion this year, $810 million of which is projected to come from exploration, with the remainder from exploitation.
