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Indonesia in OPEC membership

October 28, 2015

In December, the Organization of the Petroleum Exporting Countries (OPEC) plans to accept Indonesia’s request to rejoin the oil exporters group after a break of about seven years.

OPEC Offices.

This will see Indonesia become the only Asian member of OPEC, plus the only member that is a net importer of petroleum and other liquids.

Jakarta originally joined OPEC in 1962 but suspended its membership at the beginning of 2009 because of market challenges. 

While the country’s oil production peaked in 1976, the year 1995 saw the start of a new era in the Indonesian upstream sector. Oil output started to decline dramatically due to aging fields and limited investment.

According to the US Energy information Administration (EIA), by 2004 Indonesia had become a net importer of petroleum, because domestic demand was exceeding production.

In 2014, the country produced about 790,000 b/d of crude oil and condensates, the third-lowest level among OPEC countries.

Why rejoin OPEC?

Indonesia currently buys crude oil and petroleum products through third parties or traders, and wants direct access to long-term crude oil supply contracts through negotiations made between OPEC members.

EIA analyst, Candace Dunn says by returning to OPEC, this would strengthen Indonesia’s cooperation with oil producing countries through direct deals.

“Although Indonesia is attempting to raise its crude oil production, the country will continue to rely heavily on imports,” Dunn says.

“Moreover, Indonesia needs to attract more foreign investment in its upstream and downstream sectors and sees OPEC membership as an opportunity to garner greater investment.”

Since Indonesia lacks exploration and production technologies, an OPEC membership could also open doors to more machinery in the country, adds Anas Pradipta, Indonesia energy policy analyst at Energy Charter, who provided his personal view.

“Under the new minister, Indonesia is trying to reform several aspects in its oil and gas business,” Pradipta says.

“By joining OPEC, Indonesia could communicate formally and informally with ministers of OPEC countries and be actively involved in bilateral or multilateral cooperation.

“As for OPEC, Indonesia will help to boost oil production, plus be able to place the organization in a stronger position within the oil market,” he adds.

“As the only Southeast Asian country in OPEC, Indonesia could act as a bridge between oil producing countries and oil consuming nations in Southeast Asia.”

As the government anticipates more crude oil imports will be needed to meet domestic demand, the country is planning a number of upgrades and expansions to existing refineries slated to become operational within the next decade.

“Indonesia’s Refinery Master Development Plan involves upgrading existing refineries and boosting capacity to around 1.7 MMb/d,” says Dunn.

“Indonesia also announced plans to build four new refineries with 300,000 b/d capacity each and has been in discussions with various countries, including Kuwait and Iran on building refineries.”

Production target and new scheme

NuEnergy rig. Image from NuEnergy.

The Indonesian government is looking to target gas production between 1.1-1.3 MMboe/d and oil production approximately 800,000-830,000 b/d in 2016.

In addition, next year the government also plans to hold bidding round for 21 new oil and gas blocks comprising of 13 conventional and eight non-conventional oil and gas blocks.

Eight conventional oil blocks will be offered through regular tenders while the rest through direct tenders or joint studies.

“Indonesia is actively promoting increased exploration in the country through incentive packages too,” points out Pradipta. 

“For example, there is additional concession for oil produced from pre-tertiary reservoir rocks, deepwater contract areas, and remote areas.”

In August, the Ministry of Energy and Mineral Resources (MEMR) said it intends to offer a new contract scheme aimed at boosting exploration and production activities.  

As opposed to a product-sharing contract (PSC) whererecovery cost is substituted by the government, the new scheme is gross split or sliding scale, a system used in Australia.

Under this arrangement, the government will not provide recovery cost to contractors who will in return be entitled to a larger production share during the initial stages.

As soon as investors recover the cost spent on exploration, the government will then receive more shares from the production.

Field developments, discoveries and acquisitions

In the near term, the largest discovery that will increase production in Indonesia is the Cepu block, including the Banyu Urip field says Dunn.

“The field commenced production in early 2015 and output was 75,000 b/d in September 2015 and production is expected to peak at 205,000 b/d in 2016.

Ramba workers. Image from Ramba.

“The country has other smaller fields that are slated to become operational over the next few years, but these will not be able to offset production declines from mature basins” Dunn says.

“Chevron is employing enhanced oil recovery techniques in the Duri and Minas fields, the two largest fields in the country.”

Since January-September, Indonesian oil and gas regulator, SKK Migas has approved 18 field development plans worth US$3.652 billion.

Some of which include PT. Chevron Pacific Indonesia’s Gulamo North-01 well in the Rokan block; the Kisaran block operated by Pacific Oil & Gas; PHE ONWJ’s Foxtrot field; and PT. Pertamina EP Cepu’s Cepu block.

Most recently, the group also approved PT Energi Mega Persada’s (EMP) plan to further develop the Seng and Segat gas fields in the Bentu PSC and Ramba Energy’s proposal to develop the Lemang block in the Akatara field.

In October, Canada-based Pan Orient Energy who has thee PSCs in Indonesia found 3.7 MMscf of natural gas, 142.2 bbl of condensate and 25 bbl of condensed water in the Akeh-1 exploration well in the Batu Gajah PSC.

Hong Kong-listed CITIC Resources’ Lofin field located in the Seram Island Non-Bula block showed prominent prospects too.

As of August, the amount of contingent reserves and resources of gas, recoverable gas and condensate are estimated at 3070 Bcf, 2020 Bcf and 18.25 MMbbl, respectively.

Cooper Energy’s Tangai-Sukananti KSO development saw oil production of 38,200 bbl in the September term, 24% higher than the June quarter.

Moreover, appraisal well, Bunian-4 was completed and results showed new oil bearing reservoir, said the Australian explorer.

In recent acquisitions, Sydney-based NuEnergy Gas focused in unconventional gas production in Indonesia is in the process of purchasing Dart Energy’s Indonesian coal bed methane assets, under a conditional agreement of $1 million.

This includes Dart’s 45% interest in Tanjung Enim and 50% interest in Muralim, both located in South Sumatra; and 100% participating interest in Bontang-Bengalon in East Kalimantan. All of these blocks have been awarded a 6-year exploration permit previously.

Singapore-headquartered Mandala Energy is also buying 35% participating interest in the Lemang PSC from Ramba Energy’s subsidiary PT Hexindo Gemilang Jaya.

Subject to Indonesian government approval, Mandala will invest up to $179.6 million with an upfront cash payment of $26.25 million.

Up in the UK, Ophir Energy, too, expanded its portfolio with the acquisition of four deepwater PSCs from Niko Resources, including West Papua IV, Aru, Kofiau and Halmahera-Kofiau, all of which will be operated by Ophir.

Speaking of deepwater, the Gendalo field part of the Indonesia Deepwater Development (IDD) project could see developments too.

Situated in the Kutal basin, IDD is known to be the deepest offshore project undertaken in the country, sitting in water depths ranging 610-1829m. 

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