Indonesia offers 15 oil blocks amid thin industry interest

Unlike the conventional pools of oil and natural gas, unconventional oil and natural gas do not flow naturally through the rock, making them much more difficult to produce.
Unlike the conventional pools of oil and natural gas, unconventional oil and natural gas do not flow naturally through the rock, making them much more difficult to produce.PHOTO: RAMBA ENERGY

JAKARTA (REUTERS) - Indonesia is offering 15 conventional and unconventional oil and gas blocks to potential bidders, government officials said on Friday, hoping more flexible terms will help reverse flagging interest in the sector after lacklustre performance in 2016.

This year the government is applying new production sharing rules and will revise rules on recoverable costs and cut import duties on exploration equipment where possible, said deputy energy minister Arcandra Tahar, among efforts to incentivise new investment.

"If you can show us in your analysis and data that the split is not good enough, let's talk," Mr Tahar said, promising to listen more closely to investors. "If the result is not enough, we have 5 percent discretion from the minister. If that's still not enough, now we have a problem."

The latest offer includes 10 conventional blocks and 5 non-conventional oil and gas blocks and all will be offered under a gross split production sharing contract scheme, Wiratmaja Puja, director general of oil and gas told reporters.

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Unlike the conventional pools of oil and natural gas, unconventional oil and natural gas do not flow naturally through the rock, making them much more difficult to produce.

Thin interest in the 2016 tender was a result of low oil prices, among other factors, said Mr Tahar, who denied that Indonesia was unattractive to energy investors. "It wasn't the (investment) climate, but there was a combination of what investors' strategies were like (and) oil prices were down," Mr Tahar told reporters, noting that the recently introduced gross split mechanism had not proven to be more or less attractive yet. "In fact we are now more open to change things that never used to be changed. We have opened everything now," he added. "When oil prices pick up (investment) doesn't necessarily go up. It's slow - there's a lag."

But industry participants were less enthusiastic about the latest offer, and said more work is still needed to make Indonesia attractive. "In Indonesia at the moment, the returns are difficult, the time to get a return is too long, and the risk of political involvement is quite high," said Andrew Harwood, director of Asia Pacific upstream oil and gas research at WoodMackenzie. "So it's difficult for Indonesia at the current stage to get the gross split to be attractive against other opportunities oil and gas companies have elsewhere," he said referring to opportunities in the Gulf of Mexico, Africa, Europe and Australia.