High Difficulty Levels Require Massive Investment for Ganal Block Development

A member of the National Energy Council (DEN), Muhammad Kholid Syeirazi, stated that the Ganal Block is classified under Indonesia Deepwater Development (IDD). He noted that these IDD projects involve high levels of technical difficulty, advanced technology, and massive capital requirements. Consequently, if Regional State-Owned Enterprises (BUMD) are granted participating interest (PI) rights, they will likely face significant hurdles.

“In practice, BUMDs will struggle to provide the necessary funds for such enormous investment values, as this is a jumbo-scale investment,” Kholid said on Monday. He further explained that in a PI arrangement, BUMDs do not act as operators and merely receive benefits from upstream oil and gas activities by contributing equity, which requires substantial capital. He warned that granting PI rights in the Ganal Block could become a financial burden for the local region due to the project’s capital-intensive, high-tech, and high-risk nature.

While regulations exist to allow regions receiving a 10% PI to be supported by contractors—where the BUMD’s share is paid out only after the project reaches its ‘pay-off’ stage—the financial strain remains a concern. Given the technical and capital risks of offshore upstream activities, Kholid suggested that offering interests to State-Owned Enterprises (BUMN), which possess higher financial capabilities, might be a more viable option. He also noted that the possibility depends on whether the operators, ENI and Sinopec, decide to farm out their interests. He argued that a farm-out strategy would be ideal as it would allow Pertamina, as a BUMN, to avoid bearing the full brunt of exploration risks.

Previously, the East Kalimantan Provincial Government requested management rights through a PI scheme for the massive oil and gas reserves discovered offshore in the Ganal Block. The Head of the East Kalimantan Energy and Mineral Resources Office, Bambang Arwanto, stated that the local government would apply for involvement in managing these reserves, even though the well locations fall outside the regional authority’s jurisdiction. The massive reserves were discovered in the Geliga and Gula wells within the Ganal Block working area. Exploration results estimate potential reserves of over seven trillion cubic feet of gas and approximately 375 million barrels of oil.