Chevron, ConocoPhillips, Husky to invest $91m in oil and gas blocks

Alfian and Olivia Dameria, The Jakarta Post

Three global energy giants -- Chevron Corp, ConocoPhillips and Husky Energy Inc -- won new oil and gas exploration rights in the country on Friday and pledged total investment of at least US$91.4 million during the next three years. 

The three are among the winners of 22 new oil and gas blocks announced by the Energy and Mineral Resources Ministry Friday.

Chevron, through its subsidiary Chevron Indonesia Ventures Ltd, won the rights to explore two blocks in West Papua. For the first three years of exploration, it is committed to spend $24.5 million of investment in each field. 

ConocoPhillips, meanwhile won exploration rights in the Arafura Sea block and will need to invest $30 million in the first three years. 

The investment commitment from Canada-based Husky Energy Inc is expected to be $12.4 million, to be used to back three years of exploration activities in the North Sumbawa II block. 

For the 22 blocks, the government expects to mobilize a total investment of $375,5 million, said director general for oil and gas, Evita H. Legowo. 

Evita said the government offered the blocks through the direct offer mechanism, under which interested investors propose to the government to undertake a joint study to assess oil and gas reserves in one or more particular blocks. 

Once the studies find positive indications of reserves, then the government opens a bidding process, although the first bidding rights will be given to the company that proposed, financed and undertook the study. 

"The fact that Chevron and ConocoPhillips are still interested in these blocks shows that our production sharing contract (PSC) scheme is still attractive for investors," said R. Priyono, head of upstream oil and gas regulator BPMigas. 

Under the PSC, the government and companies concerned share the output of the block. The government's share from the projected output from these 22 blocks would be between 65 and 85 percent for oil and between 60 and 70 percent for natural gas. 

However the scheme also includes the much reported cost-recovery mechanism which requires the government to allow the companies to recover specific expenses spent by operators related to exploration activities. 

Indonesia has adopted the PSC system for more than 40 years, but lately the system has drawn some criticisms over the large expenses paid to oil and gas operators under the cost recovery provisions. 

On Friday, the government also opened a tender for 31 new oil and gas blocks, 16 of which were offered through regular tenders with the remaining blocks through the direct offer mechanism.