The government is optimistic it can successfully auction off three unconventional oil and gas fields due to several incentives being offered this year despite continued low global oil prices.

Unlike previous years in which contractors must “take it or leave it”, the government will now allow bidders to propose their own estimate of the sharing split for the government. Even so, the government’s share after tax will still have to be larger than the contractor’s final share.

Furthermore, contractors will be able to propose their own signature bonus—a payment made by a company to the government when they sign an exploration or production contract.

The Energy and Mineral Resources Ministry’s upstream oil and gas business guidance director, Tunggal, expressed his optimism that the new incentives would help boost the unconventional gas fields, notoriously known for being both expensive and difficult to explore and exploit.

“I am always optimistic. Although I cannot measure the investors’ abilities, now is the time to invest since commodity prices are low, meaning that service costs are low,” he told reporters earlier this week.

The ministry is auctioning off one shale hydrocarbon field and two coal bed methane (CBM) fields this year.

The shale hydrocarbon field is the Batu Ampar block, located in East Kalimantan, which was unsuccessfully auctioned last year, has natural gas potential of 7.08 trillion cubic feet (tcf) and 21.37 million barrels of oil. Contractors must conduct geological and geophysical studies, as well as drill one vertical exploratory well if they win the tender for this field.

Meanwhile, the Raja and Bunga Mas CBM fields have potential gas reserves of 0.92 tcf and 1.92 tcf respectively. Both require the same tests as the Batu Ampar block, with an additional drilling of two core holes each. Furthermore, contractors must also conduct one production test for each block.

With only 49 coal bed methane fields and four shale gas fields across the country, unconventional oil and gas fields only make up a small percentage of the total 289 active exploration and exploitation sites. However, they may be the key to solving the countries continued shortages in oil and gas reserves.

Indonesia has an estimated 46 tcf and 7.9 billion barrels of risked, technically recoverable shale gas and oil resources, respectively, out of a total 303 tcf and 234 billion barrels of risked shale gas and oil in the ground, according to a 2015 US Energy Information Administration report.

Technically recoverable resources refers to oil and gas that can be produced based on current technology, industry practices and geologic knowledge regardless of current global prices.

However, it is questionable how successful the new incentives will be. Similar offers were made earlier this year when the government put 14 conventional oil and gas blocks up on tender, with seven up for direct offers and the remaining up for open bidding.

Only three direct appointment blocks had been picked up, while there had been no bids for the seven up for grabs even though the deadline was Nov. 14, Tunggal said.

The Indonesian Petroleum Association (IPA) said the two new incentives were not enough, although it appreciated the government’s efforts to improve the current investment climate in the oil and gas sector.

Instead, most investors hoped that the government would start implementing ministerial regulation No. 38/2015 on unconventional oil and gas, which allowed contractors to choose one of three contract options, said IPA director Sammy Hamzah. The options are production sharing contracts (PSC), which 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 with the government will be increased progressively depending on the volume of production.

“The most important thing we want is a gross split-sliding scale, which does not include cost recovery, something that has always led to future uncertainty. Why can’t they not offer that to contractors? That is what we’ve been hoping for, to be honest,” said Sammy, who is also president director of Ephindo Energy Private Ltd.

Source:
courtesy of THE JAKARTA POST

by Fedina S. Sundaryani

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