BP plc (BP) and Total S.A. (TOT) were awarded coal bed methane (CBM) blocks in Kalimantan, as per the Indonesian energy ministry’s director general for oil and gas, Evita Herawati Legowo.
The British oil major teamed up with local company, Transasia Resources, and was awarded three blocks in Central Kalimantan province, Kapuas I, II and III. The consortium has decided to spend $13.55 million for the first three years of exploration activities in the blocks.
Separately, the French energy major Total joined hands with local co-worker Senyiur CBM and won the Kutai Timur (East Kutai) block in Borneo’s East Kalimantan province. This consortium has committed to invest $4.3 million on the block.
Coal Bed Methane is a form of natural gas extracted from coal beds. It has become an important source of energy owing to surging energy demand all over the world. Indonesia holds substantial reserves of CBM with a potential capacity of approximately 12.8 trillion cubic meters. Accordingly, the country is drawing attention from a number of energy majors. The Indonesian government expects to earn revenues of $23.78 billion this year from the oil and gas sector.
Indonesia will propose 50 hydrocarbon blocks and 10 CBM blocks this year to prospective investors. The ministry is expected to offer 39 hydrocarbon blocks by means of tenders, while the remaining will be through a direct offer.
In November last year, BP had won 100% interest in the North Arafura oil and gas production sharing contract in onshore Papua Province, Indonesia. The present award, which allows BP opportunities to work with the Indonesian government on central and regional levels, reaffirms its long-term interests in the country.
We believe exploration success will be the key for the U.K. major to deliver strong future growth as well as re-establish its position following the oil spill tragedy. Additionally, with Devon Energy Corporation (DVN), Rosneft, India’s Reliance deals in its pocket, and successful divestitures of mature assets, BP certainly seems to be coming back in shape. BP’s portfolio will be further enhanced by a stronger oil price environment as well as a concentrated upstream portfolio.
Both BP ADRs and Total shares currently retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term Neutral recommendation remains unchanged at this stage for both companies.
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