Leading players to join oil and gas auction in October

Ika Krismantari, The Jakarta Post, Jakarta

A number of oil and gas giants including U.S.-based Chevron, Exxon and ConocoPhillips, France-based Total and British-based Shell and BP, are set to submit their bids in the government's next tender for oil and gas exploration projects in the country, an official says.

Even though the auction will likely be opened in October, R. Priyono, the energy ministry's director for the upstream oil and gas industry, said Friday the big companies had submitted initial proposals, showing their interest in particular blocks located in the deep seas of eastern Indonesia.

Priyono said the most sought after block was the Semai block offshore Papua, which had attracted several major oil companies such as Chevron, Exxon, BP and Shell.

It is reported the block has a total potential reserve of 1 billion barrels of oil equivalent.

Aside from placing bids under a regular tender mechanism, the companies will also offer bids through a direct-offer mechanism.

Under such a mechanism, companies will first identify the blocks they wish to develop and then the government will advertise it to see if there are any rival bids.

Of the total 25 oil and gas blocks to be put on the table, 11 blocks will be offered through a regular tender while the remaining 14 will be under a direct-offer mechanism.

The companies that will go with the direct-offer mechanism include Total, U.S.-based Hess and China's CNOOC, which are eyeing blocks in the eastern part of Indonesia.

Energy and Mineral Resources Minister Purnomo Yusgiantoro has said the government would consider providing a better production split to encourage more investors to take part in the tender, realizing that many of the blocks are located in remote areas.

The proposed production-sharing scheme would allow investors to gain as much as 50 percent of the total revenue, he said.

Scheduled to be opened in August, the tender was delayed until October, pending a discussion on the cost recovery system used in the country's oil and gas industry, Priyono said.

"We hope there will be results in October, after which we will open the tender as soon as possible," Priyono said.

He said by October the government was expected to be able to issue clearer arrangements on cost recovery assessment, in which costs unrelated to petroleum operations could not be recovered.

"Items such as personal expenses, which are not related to exploration activities, will not be reimbursed by the government," Priyono said. "To make things clearer, we will change the form from positive lists to negative lists, instead of listing the things that are recoverable. Under the new regulation, we will submit the things that can not be recovered."

He said the new regulation would also apply to existing contracts with the government, which would first discuss the new arrangements with oil and gas operators and explain how they will change the cost recovery assessment stated in their contracts.

Energy analysts have urged the government to issue clear-cut rules to ensure the cost recovery system used in the country's oil and gas industry does not cause losses to the state. The analysts have called the existing system vague, saying it has too many gray areas that enable operators to not only recoup all of their exploration and production expenses, but also markup their spending in order to receive bigger reimbursements.