Fueling growth: Indonesia's block awards drive exploration across mature, emerging, and frontier areas

The government of Indonesia, via the Ministry of Energy and Mineral Resources, announced on Sept. 3 the award of the first three blocks from the Indonesian Petroleum Bidding Round (IPBR) 1 2024. The blocks, namely Central Andaman, Amanah and Melati, were made available under the Direct Offer mechanism. Aptly, the awards were announced during the 7th Indonesia-China Energy Forum in Bali, as Sinopec was one of several international winners for this round.

The Chinese national oil company (NOC) is part of the winning consortium for the Melati block in Southeast Sulawesi, partnering with Pertamina (operator) and KUFPEC. It is interesting to see Pertamina venturing into frontier exploration, after it acquired a large amount of seismic and other geophysical data across multiple open areas in Eastern Indonesia over the past few years.

For Sinopec, this is the first new Indonesian acreage acquired in more than a decade. Nevertheless, the company has recently expanded the partnership with Pertamina across the energy value chain, with agreements to collaborate in renewable energies, enhanced oil recovery technology and downstream business development.

Looking at the more mature asset among the recent awards, Medco continues to grow its position with the Amanah block, situated near the company's core producing assets in South Sumatra. The block provides a relatively low-risk opportunity for exploration and monetization in the mature area.

KUFPEC has been expanding in Asia-Pacific mainly as a non-operating partner in a diversified range of assets. In addition to the mature asset in South Sumatra, the Kuwait NOC gains exposure to an area with large, albeit unproven, resource potential.

Harbour and Mubadala have established themselves as key players in Indonesia since the multi-trillion standard cubic feet gas discoveries in 2022 and 2023, in the deepwater North Sumatra Basin. The award of the Central Andaman block enables both companies to secure their position in the Layaran discovery, with the value of any potential resource upside enhanced by its close proximity to existing discoveries in the Andaman II and South Andaman blocks, facilitating cluster or hub development.

Another key aspect of the latest awards is the continued success of the Direct Offer mechanism as a means of attracting upstream investors. This system essentially allows oil and gas companies to nominate areas of interest and assess the hydrocarbon potential through a joint study, in partnership with a local research institution. If the joint study area is approved and eventually offered for bidding by the government, the proposing companies are given the right to match any competing offer during the bidding process.

The newly awarded blocks are expected to generate investments of about US$20 million over the first three years of exploration. Although the amount may not appear to be substantial, it is a positive sign for Indonesia's oil and gas industry, reflecting ongoing interest from existing international players seeking to expand their presence in the country. The government has also shown a willingness to improve attractiveness in the domestic exploration and production sector through enhanced and more flexible contract terms, a much-needed effort to achieve its ambitious oil and gas production targets and attract new players.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.