* Ministry of Energy and Mineral Resources ** Medco E&P Indonesia IPA17-39-BC PROCEEDINGS, INDONESIAN PETROLEUM ASSOCIATION Forty-First Annual Convention & Exhibition, May 2017 AN ANALYSIS ON THE PHENOMENON OF FALLOW ASSETS IN INDONESIAN EXPLORATION BLOCKS Yogi Alwendra* Trian Hendro Asmoro** ABSTRACT Exploration projects are the only way to increase oil and gas reserve and production for Indonesia and have not however shown a progressive trend in the last decade, even though some fiscal incentives and new regulations have been introduced to support such projects. The phenomenon of fallow assets has therefore occurred in many of these exploration blocks. To define this further, a fallow asset is classified as a fallow block and a fallow discovery is an asset which has no activity for a certain period of time, i.e. no seismic or drilling activity. Another report published by the Ministry of Energy and Mineral Resources (EMR) regarding analysis and evaluation of data packages in the offering process of oil and gas fields (2014) mentioned that the current trend has shown a deteriorating interest of oil and gas companies to bid for the fields offered by the government. The government report investigated some technical and non-technical aspects that should be included in the governmental tender document. This paper will describe the profile of exploration projects and some relevant key information of oil and gas exploration blocks under production sharing contract (PSC) terms in Indonesia. Furthermore, the exploration commitment and its realised activity will be analysed. Finally, some recommendations are proposed to balance the interests between government and investors (companies) in order to attract more investment in exploration projects in Indonesia. Keywords: bidding process, exploration, fallow asset, PSC INTRODUCTION PSC and Block Bidding Process An oil and gas company, called a “contractor”, obtain their license from the government to do exploration in a certain field for a period of ten years with evaluation from the government every six and four years respectively. According to Government Regulation Number 35 Year 2004 article 35, the license consists of the terms of the PSC, such as sharing split, forecasted cost recovery, production and revenue (ESDM, 2004). In this period, the government already expect government revenue, known as expected revenue, from the field if the project is successful. After the license period has been signed off by both parties, the contractor is required to perform exploration, and then submit all the reports and discovery data to government regardless of the outcome of the exploration and then decide whether they want to proceed to the next phase should economical reserves be discovered during the period. Nevertheless, the scheme also implies that costs incurred during the exploration period will be borne by the contractor and will not be recovered by government if there is no discovery. If the exploration results in a commercial discovery, the activity moves to the development phases. In this phase, contractor and government agree to operate on the field with appropriate terms and a defined duration agreed in the contract. The Contractor has the obligation to start the field development, define the plan of development (POD) for the field and then build the supporting facilities for the operation. In addition, in this phase contractor can also start the cost recovery mechanism and get the incurred cost recovered by the government right after the field starts the production phase. After the development phases has passed and the field starts producing the hydrocarbon, the contract moves to the production phase. Once the field starts producing, the revenue starts flowing to contractor cash flow and eventually the government can start realising the revenue (economic rent) from the project, defined as the Government Take (GT), or realised revenue. The upstream business flow in Indonesia is summarised in Figure 1.