March 21, 2013 / 10:06 AM / 5 years ago

UPDATE 2-Indonesia awards 14 oil, gas exploration blocks

* Govt considering new incentives for exploration

* Total of $15.5 million paid in signature bonuses

By Andjarsari Paramaditha and Fergus Jensen

JAKARTA, March 21 (Reuters) - Indonesia awarded exploration rights to 14 oil and gas blocks on Thursday in a tender outcome the government hailed as showcasing the sector’s attractiveness to investors.

Southeast Asia’s biggest economy and former OPEC member is pushing to reverse its declining oil and gas output and meet expanding energy needs, but has struggled to attract interest in the sector amid uncertainty over regulatory and other issues.

The tender was preceded by a joint study process, in which oil and gas companies and the government cooperated to develop seismic data for each of the blocks. Companies involved in the study then had the right to match any best bid once the blocks were offered in the tender, discouraging other participants.

The tender results showed that Indonesia’s energy sector remained attractive to investors willing to pay for geological surveys and exploratory drilling, said Edy Hermantoro, the director general of oil and gas of the ministry of energy and mineral resources.

“Some of the blocks awarded have not been drilled yet ... This is an indication that Indonesia is still (attractive) in terms of conventional oil and gas,” he said.

There were 16 exploration blocks originally offered in the tender that opened last October following the joint studies. Of the 14 blocks awarded, most were won on uncontested bids.

When the joint study process is used, companies not involved in the data gathering stage usually don’t participate in the tender, according to a legal advisor to oil and gas companies operating in Indonesia.

“The joint study company gets the right to match the best offer and so generally others don’t bid,” said the advisor.

It was not immediately clear why the blocks were not offered in what Hermantoro called a “regular tender.”

Among the tender winners, Japan’s top oil and gas explorer Inpex Corp won a contract to explore the West Sebuku block off the coast of Kalimantan, in a consortium with Mubadala Petroleum Holdings Southeast Asia Ltd.

London-listed Salamander Energy won rights to onshore block West and Northeast Bangkanai in Kalimantan, while Premier Oil was awarded the West Tuna Block in the Natuna Sea.

Oil and gas investors were taken by surprise last year when a court ruling dismantled Indonesia’s former industry regulator BPMigas, creating uncertainty over long-standing practices for the sector. Further worries were raised this year when the successor body, SKKMigas, decided not to extend the work permit of an Exxon Mobil executive.

The exploration tender closed in November last year, but the awards were delayed by the dismantling of BPMigas.

Hermantoro acknowledged that the government needed to work with other institutions to improve the investment climate, but he also urged oil and gas companies to work more closely with the energy ministry to resolve issues such as overlapping land permits that have hampered exploration in the past.

He added that the government was working with new oil and gas regulator on planned incentives to encourage exploration. “We are examining whatever is a becoming a concern for (contractors),” he said.

Indonesia’s oil and condensate output has dropped almost in half, to 861,000 barrels per day (bpd) last year, from a peak of 1.6 million barrels a day (bpd) in 1995. The government has set a target of 900,000 bpd in its 2013 budget, but the head of SKKMigas has said the target is likely to be missed.

With five exploration wells and 960 square kilometres of 3D seismic surveys planned, the total investment commitment over the 14 blocks is $84.3 million for a 3-year period with a total signature bonus of $15.5 million.

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