Indonesian Government Awards 14 Exploration Blocks

New Kids on the Blocks

Edy Hermantoro, upstream director of the Energy and Mineral Resources Ministry, has announced that the government has awarded 14 oil and gas blocks to foreign and domestic companies. The blocks were offered as part of a broader batch of 24 blocks which the government announced it would open for tender in December 2009, 12 through the regular auction mechanism and 12 through the direct offer mechanism (see Indonesia: 8 December 2009: Government of Indonesia to Hold Tender for 24 New Oil, Gas Blocks). One block was subsequently withdrawn from the tender but around nine others—many concentrated in the Tarakan area—were not awarded, suggesting investor interest in this area is not that high. The blocks offered are spread across four main areas, offshore Papua, offshore in the Makassar Strait, onshore southern Sumatra and offshore Java.

East Java was one focus area and a relatively well-explored region of Indonesia. Here the government has awarded the Karapan, Mandala, and North Madura blocks. The Karapan block—awarded under a direct offer mechanism to Leogryph Indonesia—lies east of the already discovered Camear field in the neighbouring Bawean production-sharing contract (PSC). Eleven wells have already been drilled on the block, resulting at least three oil or gas discoveries including the Turitella, Nummulites 1, and Belemnite 1. The block is located in the East Java basin, which although relatively mature in terms of exploration density is still prospective, as evidenced by the discovery of the Banyu Urip field in the basin, which ExxonMobil is now developing. Two blocks have also been awarded in the onshore southern Sumatra area. The Puri block offered through the direct offer mechanism is located in the Central Sumatra basin which, although prolific, is a highly mature area—this could account for the lack of foreign investor interest in the area. Nine wells have been drilled in the block and some gas discoveries were made far back in the 1970s.

The Makassar Strait located between Kalimantan and Sulawesi has been a focus area in Indonesia's recent licensing rounds. This time foreign oil companies such as Talisman Energy and Thailand's NOC, PTT Exploration & Production (PTTEP), were successful in being awarded blocks. Talisman Energy is focussed on long-term growth for its South-East Asia operations and has scoped the Makassar Strait area as a key new exploration zone, which can build on its Pasangkayu and Sageri blocks in the area. The award of South Mandar, Sadang Strait, and South Sageri will do much to boost the company's exploration portfolio, which it hopes can, over the long term, uphold reserve replacement ratios and provide a further bulwark to the company's core South Sumatra production area. The Sadang Strait block located in the South Makassar basin is another underexplored area. An active petroleum system has been proved in the basin following drilling by ExxonMobil, although no commercial gas discoveries have yet been made. SE Mandar is also a higher-risk block, although with numerous oil and gas seeps discovered at the onshore edge of the South Makassar basin, there are high hopes for discoveries.

Offshore Papua in eastern Indonesia is the last focus area for awards, where Spanish company Repsol picked up a number of blocks in line with its strategy of geographic diversification to offset dependence on upstream assets in Argentina. The East Manokwari block and Cendrawasih I block—also offered in December 2009—were not awarded, but Black Gold Energy, acquired by minnow Niko Resources, made a number of investments to consolidate its position in the frontier Waipogah Basin, building on its minority stake in the Cendrawasih PSC with ExxonMobil. Drilling in Waipogah is high risk and, according to IHS Global Exploration and Production Service (GEPS), may have to contend with poor reservoir development, complex geology, and high gas pressures.

Outlook and Implications