INDONESIA - Exploration & Background.

Spending in oil and gas exploration by foreign companies in Indonesia this year is expected to nearly double to $1.1 bn. Achmad of BPMigas on Jan. 24 told Reuters foreign spending in 2004 was $590m. Foreign oil and gas contractors are expected to drill 111 wells in 2005, compared with 63 in 2004. "BPMIGAS has accelerated the process of licencing for oil contractors... This is important to develop oil and gas areas", Achmad said, according to Reuters.

Oil exploration in this archipelago began in the 19th century. Crude oil had been produced since 1893, when the islands were ruled by the Dutch. An independent republic of Indonesia was first proclaimed in 1945 and the war for independence ended in 1949, when Indonesia finally assumed control over vast resources.

Pertamina, the state concern set up after the war, took over all the fields and in the 1960s began making its own discoveries. It offered many of its marginal fields to foreign companies and some local firms for EOR operations and further development. It also offered large unexplored areas to foreign oil companies.

Caltex (now ChevronTexaco) was one of the foreign companies which had explored for oil in Central Sumatra before independence. It discovered the Duri giant in 1941 and Minas, a bigger giant, in 1944. Now Caltex accounts for more than half of Indonesia's oil production. Mobil was the first US major to explore for gas in this country and in 1971 found a super-giant, Arun, in Northern Sumatra which became the source for the world's second largest LNG complex. Two years later Agip found another gas super-giant in the Natuna sea, but the Italian company later relinquished that acreage.

Many major oil and gas finds were made in the 1970s and 1980s by foreign companies. Total found the Bekapai oil and gas field in East Kalimantan in 1972 and in 1974 it found the Handil oil and gas field. Since then it has made impressive discoveries and now it is one of the largest oil producers in Indonesia (see profiles of fields and operators in next week's Review).

Indonesia enjoyed one of the world's highest success rates in exploration drilling in the 1960s and 1970s, not only in the number of finds but also in the volumes added per wildcat. But the success rates for oil since then have not been as high and exploration slackened, because E&P terms were no longer attractive.

More than 19,000 wells have been drilled in Indonesia in more than 180 valid permits. More than 1,600 surveys have been made. Norway-based Petroleum Geo-Services in 2000 presented a multi-client 3D seismic survey over the southern part of the Kutei Basin in the Mahakam Delta, where oil has been produced since the late 19th century. The survey included the 1,600 sq km Tanjung Aru Block and large parts of Makassar Block B. Interpretation of data over Tanjung Aru showed the presence of several structural traps related to compression anticlines in the upper slope setting, with the largest prospect probably containing in-place reserves of 1.5-2 bn barrels of oil equivalent (see background in Vol. 60, No. 9).

Pertamina is formally known as PT Pertamina (Persero). Enactment of Oil and gas Law No. 22/2001 in November 2001 and Goverment Regulation No. 31/2003 has changed its legal status from a special state-own enterprise to a limited liability company. The law opens up opportunities and challenges for Pertamina as the petroleum industry becomes more competitive.

Pertamina has an integrated system from upstream to downstream. As a profit-oriented company, it has adopted a new paradigm which focuses on value creation. It has 14 subsidiaries, including Pertamina Energy Trading Limited (Petra)/oil and gas trading, PT Elnusa Harapan/marketing and trading, PT Pelita Air Service/airline service, PT Perta Medika/hospital, etc.