Oil and gas blocks once again fail to attract investors

Alfian , The Jakarta Post | Thu, 11/26/2009 1:28 PM

Indonesia has not attracted enough new investors to help develop the oil and gas sector, after failing to find viable bidders to take up offers to explore and develop oil and gas blocks, putting future oil output at risk.

After failing to award most of the oil and gas blocks offered to firms in the first half of 2009, government had to face the same outcome again in the second half of the year.

Of the total of 24 oil and gas blocks offered between June and November, only three blocks have secured investors, director general for oil and gas at the Energy and Mineral Resources Ministry, Evita H. Legowo, announced Thursday.

"I am deeply sad with the results, but this is the reality. Our oil and gas investment may decrease next year. It may also impact on our oil and gas output in the next six to ten years."

She was even more upset as seven of the 24 blocks, which were offered through the direct offer mechanism, also largely failed to attract bidders. Under the direct offer mechanism, early exploration is initiated by oil and gas contractors and these companies will later on be prioritized to develop the blocks if exploration is successful.

"Normally, all blocks offered under the direct offer mechanisms can secure developers. But, this time, of the seven blocks offered under the mechanism, only five blocks attracted bidders. Unfortunately, only two of these bidders can meet all the requirements," Evita said.

The two successful contractors are PT Sele Raya, which won the Blora block in Central Java, and a joint venture of Baruna Nusantara Energy and Niko Resources Ltd, which won the North Makassar Strait block.

For exploration activities in the first three years, PT Sele Raya has committed US$3.44 million, including $1 million in signing bonuses.

As for the three years exploration in the North Makassar Strait block, the joint venture of Baruna Nusantara Energy and Niko Resources Ltd will spend $15 million, including $1 million in signing bonuses.

For the remaining 17 blocks, all of them located in the eastern part of Indonesia, the government offered them through the regular tender mechanism. The government also failed to find developers for most of these blocks.

"Of the 17 blocks offered through regular tenders, only one bidder was interested. Luckily, the bidder met all the requirements," Evita said.

The block is the Sula I block in Central Sulawesi. The government awarded rights to explore the block to PT Brilliance Energy, which committed itself to spending $16.3 million on exploration activities in the first three years, including $1 million for signing bonuses.

Energy analyst Pri Agung Rakhmanto gave possible explanations behind the lack of interest on the part of investors. "It could be that the profiles of the offered blocks are not interesting for the investors. Or, the government's data *about the blocks* was too poor."

Evita said she and her team would analyze further the overall reasons behind these results in order to be able to come up with a set of possible solutions.