Progress of Oil and Gas Development In Indonesia

Abstract

In less than one decade the production of crude oil in Indonesia has increased from less than 0.5 million to 1.5 million bbls/day. Natural gas production is still in its infancy, but recent discoveries show an production is still in its infancy, but recent discoveries show an extremely high potential. These achievements reflect a total revitalization of one of the world's oldest producing areas. They can be attributed for the most part to a healthy atmosphere created by a unique production sharing concept, a high success ratio in exploratory production sharing concept, a high success ratio in exploratory drilling aided by technological advances, a high potential in vast unexplored areas, and a concerted, yet co-operative, effort towards Indonesianization of the industry. Twelve years after the drilling of the world's first oil well, the search for oil began in Indonesia. By 1940 Indonesia ranked fifth among world producers. Then came World War II and the struggle for independence. Production, although increasing during this period, did not keep pace with world developments, and Indonesia dropped to twelfth place. place. In the last decade alone crude oil production has increased from less than 0.5 million to 1.5 million bbls/day. Natural gas production is still in its infancy, but recent discoveries show an extremely high potential. These achievements reflect a total revitalization of the nation's petroleum industry. They can be attributed for the most part to a healthy atmosphere created by a unique production sharing concept, a high success ratio in exploratory drilling aided by technological advances, a high potential in vast unexplored areas, and a concerted, yet co-operative, effort towards Indonesianization of the industry. This sudden expansion is playing a major role in the economic development of Indonesia as well as the rest of South East Asia. Self-sufficiency in energy is an important factor to any nation in a world that runs on petroleum. It does not come easy. It requires reserves, a market, capital, technology, and qualified manpower. Indonesia is generally credited with having approximately 2% of the world's proven reserves. Huge industrial developments in Japan, the United States, and South East Asia provide a natural market. However, when two national oil companies were merged to form Pertamina in 1969, there was little available capital and the industry had been run almost exclusively by a few foreign concerns. Indonesia had an immediate need. The solution came from the emphasis on a unique production sharing concept that was originated in 1961. Production sharing is allowing for the most rapid development Production sharing is allowing for the most rapid development of Indonesia's oil and gas industry. It is based on a division of actual production between foreign oil companies and Pertamina, rather than on the traditional division of net Pertamina, rather than on the traditional division of net profit. As a result, more emphasis is placed on reserves being profit. As a result, more emphasis is placed on reserves being a resource of the nation. Although the rules can be interpreted by some as being strict, the concept provides foreign contractors with an attractive opportunity for profitable operation in a world intent on total nationalization. To date, more than 52 production sharing agreements involving 35 foreign contractors have been written. The co-authorship of this paper is indicative of the atmosphere of co-operation existing between Pertamina and outside investors. The unitization agreement negotiated in 1970 among Japex, Union Oil Company of California and Pertamina for the development of the Attaka field is an example of the work ability of production sharing. Located in offshore Eastern Kalimantan, Attaka is the largest offshore oil field in Austral-Asia. The Attaka unit covers 112 square miles of contract area in a roughly rectangular block about eight miles south of the equator in the Makassar Strait. This agreement was instrumental in preventing unnecessary and costly wells from being drilled, permitted pressure maintenance and secondary recovery practices to be implemented, and allowed wells to be spaced according to the best engineering practices without regard to boundary lines. It was the first of many multi-national contracts that presently produce most of Indonesia's oil. Caltex's Minas field in Central Sumatra is well known as being one of the 25 fields in the world to have surpassed the billion barrel milestone, while on Irian Jaya 70,000 bbls/ day are being produced under an agreement hardly five years old. This operation by Trend in Irian Jaya involved only two medium-sized drilling rigs. In offshore Java, Arco's Arjuna field and IIAPCO's Cinta field produce 100,000 and 56,000 bbls/day respectively. As effective as the production sharing concept is, not all major production can be attributed to the arrangement.