Oil and gas business players continue to show their reluctance to invest in local blocks amid low crude prices.

The Energy and Mineral Resources Ministry announced last week that none of the eight oil and gas blocks put up for tender last year had gained a winning bidder even though companies were given a lengthy four-month deadline to register an offer.

The ministry’s oil and gas director general IGN Wiratmaja Puja said that Azipac Limited had expressed interest in the Oti block and PT Agra Energi Indonesia had registered for the Kasuri II block. However, both companies proposed offers that were below the minimum amount required.

“The bidders proposed an offer under the minimum amount required for the Oti block and the Kasuri II block so there were no winners for either block,” he said.

The lack of bids was emphasized by the fact that the government increased the revenue proportion for contractors by 35 percent for oil and by 40 percent from gas, from 15 and 30 percent, respectively.

This is not the first time the government has failed to entice investment in Indonesia’s oil and gas blocks. In 2014, 10 out of 21 oil and gas blocks put up for auction failed to find new contractors. Similar to last year’s situation, several investors proposed bids for two blocks that did not fulfill requirements, while the remaining eight blocks did not find any bidders.

Wiratmaja said the failure to find a winning bidder stemmed from weak oil prices. Furthermore, the terms and conditions offered by the government were deemed economically unfeasible for potential bidders.

The global oil price lost a third of its value over the past couple of years from US$115 per barrel in 2014 to an all time low of $29 per barrel earlier this year. However, it has rebounded slightly since then and WTI set prices at $43.62 per barrel on Wednesday afternoon. Fellow benchmark Brent Crude set its price at $44.89 on the same day.

Despite the slight rebound, experts have expressed doubts that the crude price will touch the $50 mark any time soon.

However, Wiratmaja remained optimistic and said the eight blocks that failed to sign contracts last year would be put up for auction this year with 11 other blocks scheduled for tender.

IGN Wiratmaja Puja - JP/Jerry Adiguna

This year, the government will offer open bid split schemes in which potential investors can propose their own economically feasible revenue split, conducive to their current situation.

Investment interest in Indonesia’s oil and gas sector has been on the wane in recent years, despite the country’s significant potential.

A survey conducted by PwC Indonesia in 2015 showed that investment appetite in the oil and gas sector had stagnated. Based on the survey, as many as 36 percent of respondents said there would be no change in capital spending for Indonesian reserve acquisitions, with 12 percent expecting a decrease.

“Future capital spending is expected to slow, particularly for exploration. Some survey participants indicated that the price decrease had led to all exploration activities being postponed,” the report noted.

Weak investment in the oil and gas sector is not the only problem the country is facing due to low prices.

Ministry data shows that exploration activities have also declined over the past couple of years as only 52 exploratory wells were drilled last year, resulting in a mere 15 discoveries, compared to 83 wells with 25 discoveries in 2014. The number of wells drilled dropped significantly when compared to the average of 104 wells drilled per year from 2011 to 2013.

Up to 10 exploratory wells were drilled from January to April this year.

The lack of exploration may lead to national oil and gas production dropping to 1.5 million barrels of oil equivalent per day (boepd) within the next decade. The country produced on average 2.3 million boepd in its first quarter this year.

The oil price plunge has also forced global giants to slash jobs in Indonesia. The local operations of global oil and gas giants Chevron Pacific Indonesia and Japan’s Inpex are laying off workers to cut costs.

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