Publications

Even though Indonesia has been producing oil and gas for over a century, 6.8 billion barrels of oil equivalent reserves have been discovered since 2000. With its variety of play types and prospect scales, it has attracted companies ranging from small independents to the supermajors. It has accounted for around 4% of global exploration spend which is creating value and delivering returns that compare favourably with global averages. Indonesia is perceived by most companies as having substantial remaining reserves potential, particularly in its eastern basins, where large areas, both onshore and offshore, remain relatively unexplored. Between 2005 and 2008, licensing rounds were well-subscribed, with new players and established participants investing in new acreage. However, this enthusiasm has waned recently and acreage offerings in 2009 struggled to solicit interest, due to difficult economic conditions, fiscal uncertainty and doubts over the prospectivity of the blocks on offer. Despite this recent disappointment, exploration activity continues apace. The awards in 2008 secured commitments to drill at least 43 wells between 2010 and 2012, as well as almost 30,000 kilometres of 2D and 3,000 square kilometres of 3D seismic. The prospects for major new developments will be largely dictated by the results of these exploration programmes, as will expectations of Indonesia’s oil and gas production through and beyond the end of the decade. Even if there are some major successes in these predominantly high-risk, high-cost exploration programmes, the path to development is likely to be long and difficult. The lack of infrastructure in eastern Indonesia and sheer remoteness of many of the blocks will pose many commercial challenges for investors. The Indonesian political situation and regulatory conditions will be critical in attracting sustained investment and ensuring security of domestic supply. Fiscal terms are not asattractive as they once were, but still compare favourably to many other exploration provinces. However, industry perceptions of fiscal and regulatory instability, such as uncertainty surrounding cost recovery and gas DMO, is causing investors to think twice. Striking the right balance between securing the needs of the domestic market and allowing investors scope for returns that will satisfy their shareholders, will be key to the timely development of Indonesia’s oil and gas resources in the decades to come. New oil and gas reserves are desperately needed to inject new momentum into the country’s upstream industry and particularly to replenish its mature oil production base. The next few years could be pivotal for Indonesia, in dictating the scale of its future as an oil and gas producing nation. We expect high levels of exploration drilling and licensing to continue, as international and national companies attempt to replace reserves. However, the government needs to play its part to encourage companies to exert their fullest efforts to realise the prospective value in the country’s remaining oil and gas potential.