Indonesia Attracting Strong Interest from Foreign Energy Cos

Indonesia is attracting strong interest from foreign companies following the government’s efforts to improve fiscal terms of production sharing contracts (PSC).

That’s what analysts at BMI, a Fitch Solutions company, noted in a report sent to Rigzone recently, adding that international and regional companies including Eni, ExxonMobil, and Petronas “are reinforcing their commitments to invest in Indonesia’s upstream sector as the government continues to improve PSC terms to attract investments”.

“The government in 2020 revoked a rule that had made use of a gross split scheme mandatory for new or renewed PSCs and introduced a new rule allowing flexibility for investors either to choose PSCs based on gross split or cost recovery,” the analysts stated in the report.

“As a result, Indonesia has successfully managed to sign a number of PSC contracts with … international … companies for exploration and production blocks offered in 2021 and 2022 bidding rounds,” they added.

The analysts highlighted in the report that, in February this year, the Indonesian government awarded exploration contracts for three blocks including Peri Mahakam, Sangkar, and Bunga.

“The Bunga block was awarded to a consortium of PT Pertamina Hulu Energi and South Korea’s POSCO International Corporation, while Peri Mahakam block is awarded to Pertamina Hulu Energi and Eni Indonesia,” the analysts said in the report.

“Sangkar block was awarded to PT Saka Eksplorasi Timur. The offshore Paus working area with an estimated 2.5 trillion cubic feet of gas offered in [the] 2022 bidding round was awarded to Blue Sky Paus Ltd,” they added.

The analysts also noted in the report that BP’s new 30-year PSC contract for Agung I and Agung II gas exploration blocks offered in 2021 Oil and Gas Working Area Bid Round “is a major step to boost to Indonesia’s potential for gas production growth” and said Eni “reinforced its commitment to make additional investments in Indonesia’s upstream gas market after it signed a deal to purchase Chevron’s 62 percent stake in deepwater Bangka and Gendalo-Gehem gas projects”.

In the report, the BMI analysts highlighted that Petronas is ramping up investments at the Bukit Tua asset, noting that, in March 2022, Petronas won a PSC contract to operate the Ketapang II block located in East Java.

“Petronas’s subsidiary PC Ketapang II started construction on Bukit Tua Phase 2B project in Indonesia. The project is expected to produce 30 million standard cubic feet per day of gas,” the analysts said in the report.

In March 2023, Indonesia’s upstream regulator SKK Migas and ExxonMobil signed an agreement to cooperate on exploration activities in Indonesia’s open areas, the analysts stated in the report.

“The joint exploration activities will be focused on Onshore Papua, East Java, Offshore Sumatra, and others. Both parties to the agreement reported to have allocated a capital expenditure of IDR 630 billion [$41 million] for explorations,” the analysts added.

Indonesia continued to experience contractions in gas supply in 2022, the analysts highlighted in the report, attributing this to “a steep decline in production and gas reserves from maturing gas fields”.

“Gas production fluctuates between 76 billion cubic meters and 72 billion cubic meters from 2014 to 2018, until it decreased further to 57 billion cubic meters in 2022,” the analysts said in the report.

“Investment in upstream exploration has declined between 2019 and 2020, but upstream investments have picked up since 2020, rising to $12.1 billion in 2022 from $10.8 billion in 2021, according to the Indonesia’s upstream regulator SKK Migas,” they added.

“Decline in investment is attributed to various reasons ranging from a complex regulatory system and unattractive fiscal incentives,” the analysts went on to state.

The BMI analysts noted in the report that the Indonesian government is again making strong efforts to reverse declining gas reserves and production by offering more acreage for exploration.

“Indonesia is facing the issue of structural decline in natural gas reserves, which have fallen by 50 percent from 100 trillion cubic feet in 2019 to 50 trillion cubic feet in 2021,” they said in the report.

“In an effort to reverse gas reserves and production, the government launched successive upstream petroleum licensing rounds offering seven exploration and exploitation areas in 2021 and 2022,” they added.

“The majority of the blocks are located in mature basins such as South Sumatra, East Java and Kutei, indicating that investors are still looking at these areas as opportunities for lower-risk exploration and fast monetization,” they continued.

“However, the Indonesian government is expected to offer more blocks in frontier basins and deepwater areas to attract investments in upstream gas exploration and production because tapping unexplored and prospective areas will be key towards the country’s ambition to reach oil and gas production targets of one million barrels per day of oil and 12 billion cubic feet per day of gas by 2030,” they stated.

The analysts said in the report that Indonesia still presents huge opportunities for development of stranded gas discoveries.

According to the Energy Institute’s first, and the overall 72nd, annual statistical review of world energy, Indonesia produced 57.7 billion cubic meters of natural gas in 2022. This figure marked a 2.7 percent decline year on year and 1.4 percent of global natural gas production last year, the review highlighted.

Indonesia’s natural gas production has declined 3.0 percent year on year from 2012 to 2022, the review pointed out.

The country’s crude oil and condensate production stood at 612,000 barrels per day in 2022, according to the review, which outlined that this figure marked a 7.1 percent year on year decrease and 0.8 percent of the global total in 2022. From 2012 to 2022, crude oil and condensate production in Indonesia has dropped 3.3 percent year on year, according to the review.

To contact the author, email andreas.exarheas@rigzone.com