Summary
The Rigzone Newsletter of May 7reported that Exxon Mobil Oil Indonesia (EMOI) will begin exploration in four blocks in the country. The prospective oil blocks are Gunting in East Java, Cendrawasih in Papua and Surumanak and Mandar in the Makassar strait. EMOI vice president Maman Budiman said the exploration is aimed at crude oil reserve potential. He added that Indonesia’s oil production is in decline. Investors need certainty with regard to contracts which means that “deals that have been put in the contract must be commonly agreed and implemented consistently. No problems would happen or changes made in the middle of the working period. Investors wish their money to return.” The governor of West Sulawesi said he fully supported the exploration projects despite some objections from citizens of the region. He expected reactions could be overcome as the people realized the benefits of the projects which include allocation of Corporate Social Responsibility funds.
Analysis
The Banya Urip field is the largest of six fields in the Cepu Block with estimated recoverable reserves of more than 250 million barrels. Exxon Mobil’s original plan was to start limited production in 2008 but the negotiations dragged on with the result that mid-year 2009 is a more reasonable target date. With steadily declining crude oil and condensate production since 1994, the country has been hard-pressed to meet domestic needs. An oil and gas map of Indonesia and its surrounding waters indicates that the EMOI blocks have a good chance of being productive. The company needs the reserves just as Indonesia requires more production to reduce or eliminate imports. The Surumanak block was awarded in the regular 2005 tender round. The Mandar block was acquired in the August 2006 bid round. The latest acquisition (2008) was the 426,500 acre block covering both on and offshore prospects in East Java. The Indonesian government apparently thought that it had a superior negotiating position with crude oil trading at over $140/bbl. Events of mid to late 2008 revealed that instead of a position of strength, they were now holding a weak hand. That could have been a major factor in their coming to terms with EMOI. Geologically, Indonesia and its shallow waters has always been attractive to the oil and gas industry. Earliest exploration attempts go back over 100 years. Hundreds of oil and gas fields have been discovered including giants Minas and Duri, both still producing. EMOI would not have tendered for the blocks they now control without detailed geologic study. Exxon Mobil always goes for the biggest, most prospective blocks available. Thus the odds of success, now that profit-sharing questions have been resolved, is good. That is in keeping with the company’s long record of success.
