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Analysis: Big gas reserve found in the Aceh sea amid departing global oil firms
A large gas deposit was discovered recently near the coast of Aceh. The Energy and Mineral Resources Ministry described the discovery as potentially one of the largest in the world.
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MD – 111 well in Mandu Field, Mahakam Working Area (WK) managed by Pertamina Hulu Mahakam (PHM), which had just been drilled last September 26, has now begun to produce gas and condensate. (JP/N Adri)
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large gas deposit was discovered recently near the coast of Aceh. The Energy and Mineral Resources Ministry described the discovery as potentially one of the largest in the world. Contractors of the new gas reserves would agree, saying that the newly found gas reserve ought to be categorized as a “world-class discovery”. The government believes that the major gas find will attract departing global oil companies to come back to Indonesia.
The gas reserve was confirmed to be in block Andaman II, but another promising gas reserve could be found also in its adjacent block Andaman III. The first deposit in Andaman II is estimated to have 6 trillion cubic feet (TCF) of oil. This estimation was made after Premier Oil of Britain, the contractor of the Andaman II, conducted a test drill at a depth of 4,211 meters under the sea that produces 27 million standard cubic feet per day (MMSCFD) and 1,888 barrels of condensate per day. Drilling in Andaman III is still underway, but contractors of the block believe that its yield will be comparable to the reserve found in Andaman II.
The ministry’s director general of oil and gas, Tutuka Ariadji, said that Repsol Andaman BV was conducting drilling at Rencong 1X well at the Andaman III concession, located next to Andaman II. If the well in Andaman III produces similar results to the well in Andaman II, Tutuka believes that the giant gas reserves spread north until the Thailand sea. Tutuka further explained that gas produced in Andaman II contained no carbon dioxide (CO2), unlike gas produced in the Natuna Block in Riau Islands. That makes Andaman II more competitive and attractive to contractors.
Andaman II, located 150 kilometers north off the coast of Aceh, was awarded to a consortium of Premier Oil Andaman Ltd, KrisEnergy (Andaman II) Ltd and Mubadala Petroleum II RCS Ltd in 2018 under a gross split scheme for 30 years. A year later, in 2019, Kris Energy sold its participating interest to British Petroleum (BP). In January 2020, Mubadala sold 20 percent of its interest to Premier Oil, effectively making Premier Oil the operator of the block by securing 40 percent majority interest, Mubadala 30 percent and BP 30 percent.
The geology of Andaman II is complex and drilling in the area is costly. Originally, Premier Oil had planned to start drilling in Andaman II in 2021; however, its budget for that year was only enough for preliminary drilling preparations, which is why it had to push back drilling to 2022, which led to the major discovery of the gas reserves.
Energy and Mineral Resources Minister Arifin Tasrif said the major gas discovery in Andaman II would become a magnet for global oil companies that had left Indonesia because of the country’s nationalization drive.
“A number of big international companies that had left Indonesia now want to come back,” Arifin said.
What’s more
Global oil companies have been leaving Indonesia since the government nationalized the country’s biggest oil blocks, such as Rokan in Riau and Mahakam in East Kalimantan, by assigning state oil and gas company Pertamina to take over the blocks. This included Chevron, which lost all its ownership rights in Rokan, and Total, which lost its interest in Mahakam.
Another oil and gas giant, Shell, is in the process of trying to leave the Masela gas block in Maluku but it is struggling to find a buyer for its 35 percent ownership of the block worth US$800 million. In addition, Chevron, which still holds 62 percent controlling interest in the $6.98 billion Indonesian Deepwater Development (IDD) project in the Sulawesi Sea, East Kalimantan, is also looking for buyers to take over its ownership in the project.
These large oil and gas blocks are struggling to find new partners after the government’s aggressive nationalization programs. The IDD block cannot proceed until Chevron finds a new operator to take over its controlling interests. ENI of Italy is reported to be interested in the IDD project, but so far, there is no new development. The Masela gas development project, worth $19.8 billion, gas stalled because Shell is trying to leave the block. Inpex, the operator of Masela, is working with the government to find a new partner for the block.
What we’ve heard
According to an executive from a multinational oil company, it is still too early to say whether the discovery in the Andaman II block and the Andaman III block is the largest oil and gas reserve in the world, especially because this discovery is still in the exploration phase. “The potential for failure is still quite large because it’s still in the exploration phase. The development phase hasn’t begun yet,” he said.
From information given by the Energy and Mineral Resources Ministry, one of the wells drilled by Premier Oil, the operator of the Andaman II block, recently pumped 27 million cubic feet (MMSCFD) of gas per day and 1,884 condensate barrels per day (BOPD).
Some players in the oil and gas industry say that given this data, the ministry’s claims about the potential productivity of the block are exaggerated. “With rates like that, the discovery was actually not too impressive,” said a source in a national oil company. The source said drilling in some other blocks already produced more gas and condensate yields and that the drilling there was not exploratory but already established.
The multinational oil executive added that a gas flow of 27 MMSCFD would not make building an LNG plant worthwhile. If the block was to be commercialized, Premier Oil would have to build a pipeline to Singapore. According to a government source, the cheers for the large reserve in Andaman were due to the limited new reserves of oil and gas in Indonesia.
“It’s been a long time since we’ve found a new reserve,” he said. Despite this, the government is chasing a dream of extracting 1 million barrels of oil per day. With the current limited availability of reserves, it would be difficult for the government to achieve that target.
So far, Indonesian oil extraction is about 686,000 to 726,000 barrels per day. The drilling in the Andaman II block, adding 1,884 barrels of condensate per day, is nowhere near enough to close the gap to achieve the goal of 1 million barrels per day.
Disclaimer
This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access our latest edition to read the articles listed below:
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