Accepted Manuscript

A review of the history of coal exploration, discovery and

production in Indonesia: The interplay of legal framework, coal
geology and exploration strategy

Mike C. Friederich, Theo van Leeuwen

PII: S0166-5162(16)30822-9
DOI: doi: 10.1016/j.coal.2017.04.007
Reference: COGEL 2818
To appear in: International Journal of Coal Geology
Received date: 15 December 2016
Revised date: 12 April 2017
Accepted date: 13 April 2017

Please cite this article as: Mike C. Friederich, Theo van Leeuwen , A review of the
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 ACCEPTED MANUSCRIPT

A review of the history of coal exploration, discovery and production

in Indonesia: the interplay of legal framework, coal geology and
exploration strategy
Mike C. Friederich a*, Theo van Leeuwenb

aConsulting Geologist, P.O. Box 636, Kenmore, QLD, Australia

bConsulting Geologist, In H. Naim IIIB 8, Jakarta, Indonesia,

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* Corresponding Author: Mike Friederich mfrieder@bigpond.net.au

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Abstract
Indonesias long history of coal exploration and commercial production began
more than 160 years ago, when the colonial era Bureau of Mines began the first
coal exploration. However, the origin of the modern coal industry from the
1980s followed the introduction of two new investment and mining laws in

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1967, which provided the framework for experienced foreign mining companies

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to enter. The coal industry has subsequently developed mainly in Sumatra and

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Kalimantan, where the large Cenozoic sedimentary basins include coal deposits
with thick seams amenable to low cost mining.

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The First Generation Coal Contracts of Work (1st Gen CCoWs) were signed from
1981, covering some of the most prospective coal exploration target areas in
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Indonesia. Systematic coal exploration within these areas was highly successful,
with the discovery of several world-class coal deposits. Case studies are
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presented in this paper, illustrating the geology, exploration strategies and

techniques, and current production of three world-class coal discoveries which,
in 2015, amounted to nearly 28% of Indonesian coal output and over 10% of
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global steam coal and lignite exports.

Commercial coal production under the 1st Gen CCoWs began in 1989, marking
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the start of a steady increase in coal production, that in 2005 led to Indonesia
becoming the worlds largest coal exporter. Coal production from the 1st Gen
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CCoWs still account for over 50% of Indonesias total coal mined.
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During the early coal search, most private companies targeted relatively higher
rank (typically higher calorific value) steam coal for export. Therefore, the
typical focus of initial exploration included those areas that were geologically
prospective for this type of coal and which also had potential for low transport
costs. These conditions were met in some areas within Kalimantan near the east
and southeast coasts or near rivers navigable by barges. This early focus later
widened to include lower rank sub bituminous coal and lignite, suitable for
Indonesias domestic markets and as a blend coal in India, China, and countries
of SE Asia. More recently, successful exploration was undertaken in remote areas

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of the Kalimantan interior for coking coal finally achieving success some 35 to
40 years after the first reported coking coal exploration in Kalimantan in the
1960s.

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1. Introduction

With a geological endowment of large coal-bearing sedimentary basins in

Kalimantan and Sumatra, Indonesia has had a long coal mining history, starting
with the opening of the first mine in 1849. Following a long period of decline that
began with World War 2, Indonesias coal mining industry experienced a rapid

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resurgence starting with the opening of new mines in the late 1980s, some 20

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years after the liberalisation of Indonesias investment and mining laws that was

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a precursor to this growth.

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This rapid growth resulted in Indonesia becoming the worlds largest steam coal
exporter by 2005 (Lucarelli, 2015). Since then, Indonesia has maintained that
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position. For example, in 2013 it supplied 38% of global steam coal exports, and
half of Asias demand for steam coal imports (Cornot-Gandolphe, 2017), helping
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to fuel the growing economies of Asia. Exports are now dominated by sales to
India and China (Ministry of Energy and Mineral Resources, 2016), while prior to
2005 its primary markets were Japan, Korea and Taiwan.
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In addition to being a major coal exporter, Indonesias coal mining industry also
supplies a rapidly growing domestic market, mainly for electricity generation.
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However, the industry has now gone through a challenging period of reduced
export demand and low prices, impacting on the miners profitability, and
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contributing to a significant decrease in exploration activities. The low prices

forced the closure of some mines and the introduction of significant cost-cutting
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measures in others. Recently, regional coal prices have rebounded, providing

Indonesias coal miners with some financial respite. However, the level of
Indonesias future coal exports remains uncertain, with the amount of Chinese
and Indian demand unclear, while the increase in Indonesian domestic demand
for power generation may also reduce the level of exports.

In recent years, regulatory uncertainties, and relatively onerous royalty and

fiscal regimes, have become key deterrents to investment in coal mining (Cornot-
Gandolphe, 2017), especially for foreign investors (Lucarelli, 2015). Other

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challenges include the ongoing depletion of medium to high rank coal located
within easy access of coastal and river port sites (Lucarelli, 2015).
Environmental concerns, including the issue of CO2 emissions, are increasing.
Most new power plants planned or under construction in Indonesia are the more
efficient ultra-super critical (USC) (Cornot-Gandolphe, 2017), which result in
lower CO2 emissions than the usual subcritical power plants.

With the current challenges and uncertainties, it is timely to review the reasons

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behind the successful development of Indonesias coal mining industry. There

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have been previous reviews of Indonesian mineral and coal exploration (van

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Leeuwen, 1994) and the Indonesian mining industry (Devi and Prayogo, 2013)
and more specifically its coal mining industry (Cornot-Gandolphe, 2017;

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Lucarelli, 2015; Osman, 2013). However, this paper provides further insights by
reviewing the reasons behind the success of coal exploration from the 1980s
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onwards, and describes the impact of this exploration success on the
development of the Indonesian coal mining industry.
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The main objective of this paper is to analyse the interplay of investment climate,
mining law, coal geology, and exploration strategies, that were the necessary
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antecedents to the remarkable growth of the Indonesian coal industry, at a time

when the regulatory, marketing and investment climates were very different
from those prevailing today.
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To illustrate in detail some successful coal exploration strategies and programs,

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three exploration case studies are presented. They are of significant coal
deposits, located within 1st Gen CCoW concession areas that in 2015 produced
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almost 131 million tonnes (Mt) of coal, or nearly 28% of Indonesias coal
production. These account for 102 Mt or 10% (Table 1) of the worlds exports of
steam coal and lignite in 2015 of 1,011Mt (International Energy Agency, 2016a).

Statistics of the International Energy Agency (IEA) (2016a) differentiate

between steam coal, with sub bituminous or bituminous rank, and lignite. This
reference also confirms that Indonesia reclassifies their lignite production as sub
bituminous, therefore as a steam coal.

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Table 1. 2015 coal production and exports from Adaro Indonesia, Arutmin
Indonesia, and Kaltim Prima Coal

2015
CCoW Area 2015 exports
production
Adaro Indonesia 50.4 41.9
Arutmin Indonesia 25.3 14.6
Kaltim Prima Coal 55.1 45.2
Total 130.8 101.7

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Data sources: Adaro Energy (2016); Bumi Resources (2016); Petromindo (2016).

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2. Development of the Indonesian coal mining industry
Although there is a long history of smaller scale coal mining in Indonesia, the
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start of the modern coal industry was quite recent, with the first new mines
opening in the late1980s, followed by transformational growth. This section
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describes the main phases of the development of the coal exploration and mining
industry.
2.1 1849-1945: The Colonial period: initial exploration and mining
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In 1827, the colonial Government of the Netherlands Indies became concerned

about its dependence on coal imported from Europe. This combined with the
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increasing demand for fuel by steamship companies stimulated the search for
coal in the colony.
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Coal occurrences were reported by geologists such as C. Schwaner, whose 1846

expedition located Eocene age coal near Amuntai in South Kalimantan. This
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deposit was then developed, with the opening of the Oranje Nassau underground
mine on the Riam Kiwa River, near Pengaron, in 1849 (Hooze, 1893, as reported
by van Bemmelen, 1949). The mine was operated by the Netherlands Indies
Government.

In 1850, a Dutch Government report highlighted the strategic need for coal
production within Indonesia (Poley, 2000). Two years later the colonial
Government of the Netherlands Indies formed the Bureau of Mines (Dienst van

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het Mijnwezen), with the main task of conducting geological exploration in

several areas regarded as prospective for coal (Devi and Prayogo, 2013).

This period was followed by the development of several small government and
private-owned mines on Kalimantan, Java, Sumatra and Maluku, typically along
rivers or on the coast that could supply steam ships. However, production from
these mines fell far short of demand. This situation changed in 1892 with the
opening of the government-owned Ombilin underground mine in West Sumatra

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(discovered in 1868, as noted by van Bemmelen, 1949) with an estimated

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resource of 200 Mt. In 1919, the government started to develop the Bukit Asam

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coalfield in South Sumatra. The presence of coal in this area had been known to
the Bureau of Mines since surveys by the mining engineer R. Everwijn, in 1858,

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which located coal seams near Muara Enim. Coal exploration from 1915 to 1918
discovered that in the Bukit Asam area the typical low rank coal of the region
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had locally been ameliorated by igneous activity, to anthracite rank.

Prijono (1989) notes that the Ombilin and Bukit Asam mines were developed to
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supply not only steamships but also the steam train market of Java and Sumatra.
Indonesian coal production peaked at over 2 Mt per year (Mtpa) in 1941, just
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before the entry of Asia into World War 2 (van Bemmelen, 1949). At that time,
about 30% of the total coal production was exported to other countries in the
region. The majority of this production was from the Ombilin and Bukit Asam
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mines in Sumatra. Several privately-owned mines in Kalimantan produced (in

the pre-war years) more than 500,000 tonnes per year (van Bemmelen, 1949).
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Coal production almost collapsed from World War 2 until the 1980s when the
modern coal mining industry started to develop.
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Van Bemmelen (1949) summarizes the geology and locations of the coal
occurrences known shortly after World War 2. Most of these occurrences had
been identified by the Bureau of Mines, which had maintained responsibility for
mineral exploration and regional geological mapping. Among these coal
occurrences were some important Indonesian coal deposits that, at the outbreak
of World War 2 in Asia, were still not developed, probably due to the lack of
markets at the time. However, many prospective basins in Indonesia remained
relatively unexplored. According to Sigit (1996), by 1940, only some 5% of the

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country was covered by systematic geological mapping, while 75% was covered
by reconnaissance mapping, with the remaining 20% unmapped.

2.2 1967 -1978: The regulatory framework is reformed, modern exploration starts

Following the major decline of the mining industry associated with the
disruptions of World War 2 and its aftermath, new foreign investment and
mining laws were introduced in 1967 by the Indonesian Government. These
were:

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- Law 1/1967 on Foreign Investment; and

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- Law 11/1967 on Basic Provisions of Mining.

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These laws enabled foreign investment in the mining sector within the
framework of the Contract of Work (CoW) system, initially for minerals such as
copper, tin, bauxite and nickel, and excluding coal. Under the CoW system,
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financial obligations such as taxes, production share and import duties were
fixed during the life of the contract.
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Before 1973, world export markets for steam coal were almost non-existent and
there was limited domestic demand within Indonesia. Only two companies were
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exploring for coal in Indonesia at this time, i.e. Rio Tinto Zinc (RTZ) and Shell,
neither of which came to Indonesia with coal as a primary target.
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2.2.1 RTZs exploration in Sumatra

RTZ entered Indonesia in 1969 to explore for porphyry copper deposits in West
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Sumatra. The Government of Indonesia requested technical advice from the

company at that time on the Ombilin coal mine, which straddled the northern
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boundary of the RTZ CoW (Fig. 1). The coal consultant engaged by RTZ
concluded that surface mineable resources at Ombilin were quite limited,
although there was potential to discover a large underground resource.
Meanwhile in early 1972, one of the RTZ porphyry copper search teams
discovered a thick coal seam in the Bungo Basin, southeast of Ombilin,
highlighting exploration potential outside of Ombilin. Ground follow-up led to
the discovery of the Sinamar deposit, which was investigated in detail between
1973 and 1975. A feasibility study at that time showed this deposit to be

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uneconomic because of its quality (refer to Table 2), size and distance from a
potential port site.

Table 2. Coal quality, Sinamar deposit, main seams

Moisture Ash Volatile Sulphur Calorific

Matter Value
15.2 16.3 37.3 1.10 5339
All values are at air dried basis; units in percent; calorific value in Kcal/kg. Data
source is Soehandojo, 1989.

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2.2.2. Shells South Sumatran coal exploration

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In 1973, Shell Mijnbouw N.V. (Shell) signed a production-sharing agreement with
the Government of Indonesia over an area of 71,450 sq. km, covering much of the

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South Sumatra Basin (Amir, 1991). (The approximate location is shown in Figs. 1
and 2.)
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The production-sharing basis was modelled on the contracts in use in the
Indonesian oil and gas industry. Shell began a major coal exploration program in
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1974 including aerial photography, field mapping, test pits, and an intensive
helicopter supported program over much of the South Sumatra Basin, with up to
nine drilling rigs (van Leeuwen, 1994). The target was Late Miocene to Pliocene
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age coals of the Muara Enim Formation. This exploration successfully delineated
18 billion tonnes of low rank coal resources to 100 m depth (Prijono, 1989). Its
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exploration focus included West Banko coal deposit near Tanjung Enim, where
the rank and coal quality are higher, with lower moisture content and higher
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calorific value, than the typical coals of the South Sumatra Basin. (Surface
geology and the location of selected exploration targets are sho wn in Fig. 2.)
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By 1978, it was decided that the project was not feasible as an export project,
primarily because of the high moisture and sodium contents (van Leeuwen,
1994), and Shell withdrew. PN Tambang Batubara (now named PT Bukit Asam
(PTBA)), at the time a Government-owned coal company, later developed some
of the deposits delineated by Shell including the important West Banko deposit,
which, with the assistance of the World Bank, became a significant source of coal
for domestic power plants in Java.

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2.3 1981-1988: The 1st Gen CCoWs

The 1973-74 oil crisis was a turning point, which brought a freeze on new areas
being granted for coal exploration while the Indonesian Government formulated
a new energy policy. This policy was announced in 1976, with an aim to
maximize oil exports, by promoting the use of coal domestically, for electricity
generation and cement manufacture. The Indonesian Government decided to
expand production from the state-run (by PN Tambang Batubara) coal mines at

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Ombilin and Bukit Asam in Sumatra. The new energy policy also resulted in the

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decision to support the exploration and development of coal in Kalimantan,
through private sector companies.

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As a result, in 1978 PN Tambang Batubara, the organisation then responsible for

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the development of Indonesian coal resources, invited foreign companies to
tender for rights to explore and mine coal in eight blocks in Kalimantan.
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Negotiations then started on financial and other terms. The first three of a total
of 12 contracts were signed in November 1981 (Osman, 2013) while the
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remainder were finalized between 1982 and 1990 (Table 3). These are now
referred to as 1st Gen CCoWs. Terms and conditions are summarised by
Lucarelli, 2015.
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Eleven of these 1st Gen CCoWs were located along the east coast of Kalimantan
(Figs. 1 and 3) and one in West Sumatra Province. The agreements were with
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foreign companies with the exception of two of the later agreements, which were
signed with domestic companies
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Table 3. Ownership, year of signing, area and 2015 production of the 1st Gen CCoWs.
Year Production
Initial
of
Company Original shareholder(s) Province CCoW
area 2015
Start
signing (hectares) (Mt)

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Arutmin ARCO and Utah
International
South Kalimantan 1981 1,260,000 1989

R I 25.3

Utah Indonesia Utah International (USA) East & South

Kalimantan
1981
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797,200

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1993 0.0

Agip/Consol Agip Carbone (Italy) &

Consolidated Coal (USA)
East Kalimantan 1981

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774,200 None 0.0

Kaltim Prima Coal

Adaro
Kideco
RTZ/BP
Enadimsa (Spain)
Several Korean companies
East Kalimantan
South Kalimantan
South Kalimantan
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1982
1982
1982
790,900
148,148
254,804
1991
1992
1993
55.1
50.4
39.7
Berau Mobil Oil Corp. (USA) &
Nissho Iwai (Japan)
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East Kalimantan 1983 487,217 1994 27.0

Chung Hua
Allied Indo Coal
EMRO and Tai Power

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Transfield (Australia) &T South Kalimantan
West Sumatra
1985
1985
150,300
844
None
1987
0.0
0.0

Multi Harapan Utama

Mitra Abadi Sakti
(domestic)
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Several including Swabara East Kalimantan 1986 189,954 1988 2.7

Tanito Harum A C
Australia (40%)
Domestic company East Kalimantan 1987 123,846 1988 1.0
Indominco Mandiri Salim Group (domestic) East Kalimantan 1990 100,000 1997 13.2

From Lucarelli, 2015 and Soehandojo, 1989. Production levels for 2015 are from Petromindo (2016) reporting data from the Directorate
General of Minerals and Coal, except as noted below:

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Adaro Indonesia: 2015 production from Adaro Energy, 2016.

Arutmin Indonesia, Kaltim Prima Coal: 2015 production from Bumi Resources, 2016

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The 1st Gen CCoWs required staged relinquishments of the original area, the
largest of which, owned by Arutmin (Fig. 3), covered an initial area of 1,260,000
hectares (ha). These relinquishments ensured timely exploration at a level
sufficient to prioritize which areas would be retained, and also generally resulted
in the relinquishment of areas known to contain coal. Some relinquished areas
with coal exploration potential were later further explored successfully by other
companies.

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The 1st Gen CCoWs, signed between 1981 and 1990, remain the largest group of

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coal producers, accounting for more than 50% of the total Indonesian coal

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output in 2015. Most 1st Gen CCoWs were initially held by foreign companies but
subsequently their ownership has mostly divested to domestic companies in

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accordance with CCoW terms and conditions.
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2.4 From 1988: Growth and change

2.4.1 1988 -1999: Modern coal mining begins

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Before 1988, there was only minor production, mainly by then Government-
owned producer PTBA, from coal mines in South Sumatra. Total Indonesian coal
production in 1981 was only 405,000 tonnes (Osman, 2013). However,
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production from the 1st Gen CCoWs in Kalimantan then grew quickly. These
areas were geologically among the most prospective in Indonesia and were well
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located near the coast, therefore amenable to early development to supply the
growing steam coal export markets of Asia. At the same time as these private
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sector developments, the coal mines of PTBA in South Sumatra were being
expanded, and rail and port infrastructure constructed, to supply new power
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plants in Java.

Following the governments strategy to maintain production growth, a CCoW

with revised terms, now known as the 2nd Gen CCoW, was introduced in 1994,
limited to domestic companies. Nineteen of these were signed in 1994
(Tirtosoekotjo, 2000). A total of 114 3rd Gen CCoWs were then signed between
1997 and 2000 (Setiawan, 2006). They were offered to both foreign and
domestic companies, but most 3 rd Gen CCoWs were signed with domestic
entities. Differences in terms between the three generations of CCoWs are

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summarized by Lucarelli (2015). The areas covered by these later generation

CCoWs were mostly geologically less attractive, and hence production growth
was slower.

2.4.2 1999-2005 Regional autonomy

In 1999, Law 22/1999 on Regional Government and Law 25/1999 on Fiscal

Decentralisation were introduced. The effect of these laws was to decentralise
much of the regulation of the Indonesian mining sector from the Indonesian

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Governments Ministry of Energy and Mineral Resources (MEMR) to the Province

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Governments and to the sub-province level Local Governments (Kabupaten). The

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new laws also brought Provincial and Local Governments a greater share of

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revenue from mining projects within their respective areas.

The issuing of new CCoWs stopped completely when this new law on regional
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autonomy was introduced. CCoWs (and COWs) that had been previously issued
remained valid, and the MEMR continued responsibility for regulation of these
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agreements. Local and Provincial Governments were permitted to issue a pre-

existing form of license known as Kuasa Pertambangan or KP to domestic
companies to explore and produce coal and minerals. More detail on this KP
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system is provided by Hayati, 2014, and Lucarelli, 2015.

In 1999, Forestry Law 41/1999 was enacted. This law prohibited surface mining
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within defined forest conservation or protected areas, and had a major impact on
coal exploration activities. The right to explore and develop within these
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protected areas was later clarified by new regulations, as detailed by Lucarelli,

2015.
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2.4.3 Post 2005: Changing regulatory environment, market volatility

In 2009 the Law on Mineral and Coal Mining 4/2009 was introduced, replacing
the previous Mining Law 11/1967, and bringing stronger regulation of the
mining industry. The new law replaced the CCoW framework for foreign and
domestic investors, and the KP system for domestic investors, with a single new
licencing system. The usual licence category for private companies investing in
coal exploration and production became the Mining Business Licence or Izin
Usaha Pertambangan (IUP), for both foreign and domestic investors.

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The maximum licence areas permitted for coal under the IUP system are smaller
than the maximum permitted areas of the CCoWs, with a maximum of 50,000 ha
for an exploration stage permit, and 15,000 ha at the productio n stage. Financial
and other terms are based on the tax and other fiscal laws and regulations that
are in force from time to time, in contrast to the fixed commercial terms of the
CCoWs, as noted by Devi and Prayogo, 2013.

Under the new mining law, the authority to issue and regulate licences was held

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by Local Governments for licences located within a Local Government area. In

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cases of overlap between adjacent Local Government areas, the issuing authority

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would be the Province Government; and in the case of overlap between
Provinces, the Central Government took that role. A process began of converting

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existing KPs to IUPs. Stricter regulations were brought in later, giving the MEMR
and Province Governments a greater role in the process.
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In other developments, in 2013 a new regulation introduced a transparent
tender process for the issuing of new IUPs. In 2014 another government
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regulation transferred the authority to issue and regulate IUPs of foreign

investors to the MEMR. In 2015 the MEMR delegated to the Investment
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Coordinating Board the right to issue new IUP licenses to foreign companies.
Other regulations cover aspects such as reducing the amount of illegal mining,
regulating the supply of coal by producers to meet domestic demand, and
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introducing more stringent divestment requirements for foreign investors in the

mining sector. More details are provided by Cornot-Gandolphe (2017) and
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Lucarelli (2015).
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From about 2003, global coal markets and prices were beginning their upward
move, during which the price of export steam and coking coal increased
dramatically. For example, an index of export steam coal prices out of Newcastle,
Australia reached over US$100 per tonne in 2008, falling to $60 per tonne in
2009 before reaching another peak above $100 per tonne in 2011. The boom in
steam coal demand had a major impact on the Indonesian coal mining sector,
with many new mines opened, and the capacity of some existing mines
expanded. Following the 2011 peak in coal prices, the spot price of export steam

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coal at Newcastle decreased to a low near US$50 per tonne through May 2016
before a sharp rebound (B. Lucarelli, personal communication).

Indonesian coal production and exports grew to a peak in 2013. Indonesian

production and exports between 2000 and 2015 are shown in Fig. 4, compiled
from statistics published by the International Energy Agency (IEA).

Coal exploration activities peaked with the coal boom, but then declined, with
greenfields coal exploration (i.e. early stage exploration in new target areas)

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reducing rapidly. The ongoing exploration activity has been mainly

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brownfields, aimed at reserve replacement near operating mines, or extending

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the life of mines, by locating additional resources or reserves near operating

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mines.
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3. Geological setting of Indonesian coal deposits
This paper has already noted that the earlier Gen 1 CCoWs were in prospective
areas of eastern Kalimantan, and has noted the presence of widespread generally
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low rank coal deposits in southern Sumatra. The geological setting of the
Cenozoic sedimentary basins of Indonesia and their coal deposits has been
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described in detail in the geological literature. This section therefore provides

only the key points to place in geological context the exploration strategies,
programs and results described later in this paper.
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The modern tectonic setting of Indonesia, and the location of the major coal-
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bearing sedimentary basins, are shown in Fig. 5, while the tectonic and
sedimentary setting, palaeoclimate at the time of formation, and the properties
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of the major coal deposits are summarized in Table 4. The Cenozoic tectonic
evolution of SE Asia is reviewed by Hall (2012). The tectono-stratigraphic
framework of coal deposits within the main sedimentary basins is described in
the studies of others including Daulay et al. (2000), Davis et al. (2007), Flores
(2014), Friederich et al. (2016), Koesoemadinata (2000), Panggabean (1991),
and Witts et al. (2012).

The Cenozoic coal basins of Sumatra and Kalimantan contain the majority of the
known coal resources of Indonesia. The largest coal accumulations are in the

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South Sumatra Basin and the adjacent southern part of the Central Sumatra
Basin; and the Kutai and Barito basins in eastern Kalimantan.

The main coal-bearing sedimentary basins of Sumatra are the South Sumatra
Basin and the southern part of the Central Sumatra Basin. The main coal
measures of interest are within the Muara Enim Formation of the South Sumatra
Basin, which extends into the Central Sumatra Basin as the Petani Formation.
The formation contains multiple thick seams. Shell Mijnbouw (1978) noted the

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lateral continuity of the coal-bearing horizons over large parts of the South

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Sumatra Basin. Thermal maturity over most of the basin is low, typically lignite

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rank (ASTM) but there has been thermal upgrading near Tanjung Enim, by Plio -
Pleistocene andesite intrusions (Amijaya and Littke, 2005).

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Coal measures in the sedimentary basins of Kalimantan developed during two
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distinct periods. Eocene age coal was mainly limited to the sedimentary basins of
SE Kalimantan, the upper Kutai sub-basin, and some occurrences in West
Kalimantan. Coal stratigraphy and deposits within these basins are described by
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authors including Friederich et al., (1999) and Pieters et al., (1993). The coal is
typically of bituminous rank, in contrast to the typically lower rank of Neogene
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coals of Indonesia. Ash yields are typically low to moderate (~3-10% in the
upper Kutai sub-basin, up to 15% in SE Kalimantan), while sulphur contents are
variable (Friederich et al., 2016).
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Miocene to Pliocene coal formed and was preserved over extensive areas within
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the large sedimentary basins of eastern Kalimantan. Coal deposits within these
basins are described by many authors including Alam et al. (2010), Dirasutisna
AC

(2000), Macmillan et al. (2000), Nas (1994), and Widodo et al. (2010). The ASTM
rank of the Neogene coal is typically lignite to sub-bituminous, increasing locally
to bituminous where there has been thermal upgrading. Neogene strata within
the Kalimantan sedimentary basins include areas with intervals of multiple
seams, of mainly sub-bituminous rank, and with typically low ash yield. Sulphur
contents are variable, as noted by Friederich et al. (2016), and are below 1% in
the younger coal measures, and very low (below 0.2%) in some deposits.

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The following section describes the exploration strategies of the private sector
CCoW companies, that resulted in the exploration, discovery and development of
important steam coal deposits in Kalimantan. The success of their strategies is
now clear, with 93% of estimated Indonesian coal production in 2015 coming
from Kalimantan (from production statistics reported by Petromindo, 2016).

P T
RI
SC
NU
MA
ED
PT
CE
AC

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Table 4. Summary comparison of the tectonic and sedimentary setting, age, palaeoclimate and coal properties between some major coal
basins of western Indonesia. Modified from Friederich et al., 2015.
Typical Age
Sedimentary Palaeo-
Basins of Coal Tectonic setting Summary coal properties
Formation
setting climate

P T
Middle - Late
Continental margin setting, rift
origin associated with the
Regressive; coastal R I Multiple seams; areally
extensive; some thicker than 5m;
Barito, Kutai, Tarakan Miocene to
Pliocene
Makassar Strait opening,
followed by a thermal sag
S C
plain, deltaic and
fluvial facies.
Equatorial
ever-wet
low ash yield and sulphur
contents. Vitrinite macerals
phase enhanced by sediment
loading.
N U dominate. Rank typically sub-
bituminous to lignite.

Central and South Late Miocene

Back-arc tectonic setting; rift
origin, followed by thermal sag M A
Regressive; coastal
plain and fluvial
Equatorial
Multiple seams; areally
extensive; typically thicker than
5m; low ash yield and sulphur
Sumatra to Pliocene
D
enhanced by sediment loading.
E
facies.
ever-wet contents. Vitrinite macerals
dominate. Rank typically sub-

P T
Syn-rift; limited areal extent in Continental; fluvial
bituminous to lignite.
Seams are thin (1m) to
SW margin of Central
Sumatra Basin and
nearby grabens
Eocene to
Oligocene
C E
mostly small extensional
grabens, many were later
and a frequent
freshwater
Equatorial
ever-wet
thick(>5m); small areal extent;
moderate to high ash yield;
variable sulphur; bituminous

Barito, Pasir, and A C buried below younger units lacustrine facies.

Transgressive;
rank.
Few seams, locally >4m thick;
Extensional, early post-rift,
Asem Asem basins fluvial sediments laterally continuous. Low to
moderate areal extent Equatorial
and Upper Kutai sub- Eocene and peat mires moderate ash yield and sulphur
covering areas much larger ever-wet
basin (central and SE overlain by shallow content; vitrinite macerals
than the initial rifts
Kalimantan) marine facies. dominate; bituminous rank.

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4. Exploration Strategies and Programs

While coal exploration techniques have evolved over the years, so has the
understanding of the importance of exploring safely, and respecting the natural
environment, in the planning and execution stages. The potential for mining-
related environmental impacts is nowadays further emphasised at an early stage
within the exploration programs. Exploration geologists have with few

T
exceptions co-operated closely with the local communities within their (often

P
remote) exploration areas, but this aspect has also continued to evolve, and is

RI
now typically prioritised within the planning and implementation of exploration
programs, including early (and more formalized) consultation with the

SC
communities. Most exploration programs include a focus on the training and
employment of a local workforce, including those from the nearest communities.
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4.1 First Gen CCoWs
MA

The private sector exploration companies that signed the Gen 1 CCoWs were
initially attracted to the basins of eastern Kalimantan by the coal quality, with
higher rank, therefore higher calorific value, than the coal deposits of southern
ED

Sumatra. This higher calorific value was necessary to comply with export market
specifications at that time. In addition, the potential target areas within
PT

Kalimantan included areas near the coast or near rivers that could be accessed
by barging. Economic coal deposits discovered in these locations could be
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quickly developed into mines with low cost access to coal ports. In contrast,
many of the known potential target areas in southern Sumatra were less
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favourably located, with greater haulage distances. The initial strategy, of

locating higher quality coal near potential port sites, guided the selection of the
Gen 1 CCoWs. The exploration programs within these CCoWs are now described.

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Exploration of the 1st Gen CCoWs began in the 1980s at a time when regional
geological mapping of Indonesia was incomplete. Geological maps at a scale of
1:250,000 from Indonesias Geological Research and Development Centre (now
known as the Geological Agency) were becoming available, based on a
combination of mainly reconnaissance level field mapping and aerial photograph
interpretation.

There was also an important legacy of coal exploration of some deposits by

T
geologists from the Dutch colonial period, which is summarised by van

P
Bemmelen (1949). In addition, in 1974 a UK-based consulting group, Robertson

RI
Research International, compiled a multi-client report on the coal deposits and
coal geology of Indonesia, titled Coal Resources of Indonesia. This report

SC
included detailed descriptions of coal deposits and occurrences, based on
published and unpublished reports and maps from sources in Holland and
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Indonesia.

Enabled by the legacy information on some coal deposits, some companies

MA

focussed their exploration initially on these deposits, to fast-track development.

The exploration strategy of other companies was to both explore known deposits
ED

and undertake a regional geological mapping over the remainder of the areas,
either simultaneously or through a staged process. Because of the requirement
under the CCoW to relinquish large areas relatively quickly, it was also
PT

important to explore the contract areas in sufficient detail to prioritise areas to

be retained.
CE

Regional exploration programs included geological interpretation using aerial

AC

photographs and side-looking aerial radar (SLAR). The use of SLAR combined
with reconnaissance level field mapping allowed a re-interpretation of regional
geology including regional structure, and a more precise definition of the
location of potential coal-bearing units. It also allowed the production of reliable
base maps.

Geological reconnaissance mainly comprised field mapping of prospective areas.

Mapping mainly focussed on streams. Because of the hardness of the coal,

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combined with relatively quick erosion by the streams, coal outcrops frequently
were located in stream beds. Outcrops were logged, and samples were analysed.

Following regional mapping and reconnaissance, the focus moved to the targets
regarded as most prospective, based on coal quality and thickness, regional
structure and the location relative to infrastructure or proximity to the coast or
to rivers navigable by barges. The following exploration stages included
surveying, topographic mapping, additional sampling of coal outcrops, and then

T
drilling, combined with the use of downhole geophysical logs. Drilling rigs used

P
included light weight man or helicopter portable rigs, and fast truck or tractor-

RI
mounted rotary drilling rigs which needed road access. Supporting these
programs was the introduction of service companies, domestic and foreign,

SC
providing geological expertise, and services in surveying, drilling, geophysical
logging, and coal analysis.
NU
Between 1981 and 1990, over 30 coal deposits in Kalimantan were tested by
drilling, with approximately 600,000 m drilled (van Leeuwen, 1994). The two
MA

deposits then regarded as the most economically important, Satui (within the
Arutmin block) and Pinang (Kaltim Prima Coal) were new discoveries, without a
ED

previous exploration history, although, as noted by van Leeuwen (1994), Dutch

geologists had previously reported the presence of high quality coal during
regional exploration. These deposits contained thick seams of high quality steam
PT

coal which were well located for export and therefore quickly developed into
mines. Location of these and other discoveries in the 1st Gen CCoWs in
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Kalimantan are shown in Fig. 3. The 1st Gen CCoW discoveries were then drilled
to the point where geological resources and mineable reserves were estimated,
AC

feasibility studies completed, and coal mines developed.

4.2 2nd and 3rd Gen CCoWs

4.2.1 Filling in the gaps

The nineteen 2nd Gen CCoWs (all issued in 1994) were located in Kalimantan
(14), Sumatra, (4), West Papua Province (1). Many of the CCoWs in Kalimantan
were located within areas previously explored and relinquished by 1st Gen CCoW

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holders, where the next step was additional drilling to confirm resource size and
quality. Exploration was moderately successful. By 1999 production had reached
3.5 Mtpa and in 2015 production, from only 10 of the original 19 CCoWs, was
30.7 Mt or 6.5% of Indonesias total.

The maximum initial size of the 2nd Gen CCoWs was 100,000 hectares. Some of
these CCoWs were in more remote areas, or were targeting coal with lower
quality than the 1st and 2nd Gen, and there was a lower discovery rate than

T
among the 1st Gen CCoWs. As noted by Lucarelli (2015), it was not until 2009

P
that the aggregate coal production from 3 rd Gen CCoWs reached 20 Mtpa. The

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aggregate production in 2015 was still only 30 Mt, or 6.4% of total Indonesian
production.

SC
4.2.2 Coking coal exploration success
NU
For many decades coking coal in Indonesia had been an elusive target. Globally,
Cenozoic age coking coal is comparatively rare, as most Cenozoic coal has not
MA

reached the level of thermal maturity needed for coking properties to develop.
The long delay in the discovery of coking coal in Indonesia reflects the lack of
coal of suitable thermal maturity within the more accessible basins. During pre-
ED

war times, the Dutch carried out extensive test work to evaluate the potential to
produce coke for steel making from Indonesian coal, but without success.
PT

A joint Indonesian-Russian program in the 1950s and 1960s unsuccessfully

explored for coking coal in southeast Kalimantan (Sigit, 1980). Exploration
CE

activities comprised field mapping, sampling and analysis of coal seams, and a
limited amount of drilling near coal outcrops. Interestingly, reports filed at the
AC

time demonstrate that the evaluation of Eocene age coal in the upper portion of
the Mahakam River of East Kalimantan resulted in the identification of coal
occurrences with significant coking properties (Madiadipoera and Trafimov,
1969). Several companies, domestic and foreign, began active exploration for
coking coal in the 1990s. The targets were within Eocene age coal measures of
the upper Kutai sub-basin of East and Central Kalimantan and nearby areas with
similar stratigraphy, within the NW portion of the Barito Basin. Quality of some
of these deposits has been described by authors including Friederich et al.

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(2016), Nas and Hidartan (2010) and SMG Consultants (2011). While little has
been published yet about these programs, they took place in remote areas with a
low level of systematic regional geological mapping. Several discoveries were
made, with over 1 billion tonnes of coking coal resources now estimated under
the JORC Code by several companies including BHP Billiton, 2016 and Borneo
Lumbung Energi & Metals, 2017. Coking coal production has started.

5. Case Studies

T
The three case studies describe modern exploration programs that all began in

P
the early 1980s and were highly successful in locating coal resources suitable for

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development for export, within licence areas that produced more than 130 Mt in

SC
2015. A common factor in each program is the early targeting of deposits of
comparatively elevated thermal rank, therefore of higher calorific value than is
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otherwise typical.

5.1 Adaro Indonesia

MA

Adaro Indonesia (Adaro) is a major coal producer, holding a 1st Gen CCoW
located on the eastern margin of the Barito Basin, in South Kalimantan (Fig. 3).
The Adaro CCoW, which was one of the first to be granted, was signed in 1982
ED

with Empresa Nacional Adaro de Investigaciones Mineras, S.A. (Enadimsa), a

company then owned by the Spanish Government. The initial area of the Adaro
PT

CCoW was 148,148 ha. Following two relinquishments, the area has now been
reduced to 35,800 ha.
CE

5.1.1 Coal geology

AC

The Adaro CCoW is located on the NE margin of the Barito Basin. The margin of
the basin is marked by a major thrust fault, with pre-Cenozoic basement thrust
over the Cenozoic sediments of the Barito Basin. The coal deposits of interest are
within the upper part of the Middle to Late Miocene Warukin Formation. Data on
these coal deposits was provided by Adaro Indonesia.

Multiple coal seams have developed, some of which are very thick. The Tutupan
deposit contains three main seams, each of which is up to 50 m thick, with a
cumulative thickness of all seams of up to 150 m. The thermal maturity, and

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hence calorific value, of the two most easterly deposits, Tutupan and Warukin, is
higher than that of most of the Warukin Formation coals within the Barito Basin.

5.1.2 Exploration history

Adaro Energy has provided much of the following detail on the exploration
history of the Adaro CCoW. The presence of coal in and near the contract area
was known from early Dutch geological reports, and later reports for the
Indonesian Government, based on geological mapping and also evaluation of

T
data from Pertamina, the state-owned oil and gas producer. Petroleum drilling

P
for Pertamina located thick coal seams of Miocene age in the area.

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Enadimsa began exploration within the contract area in 1983. Geological

SC
mapping and trenching over targets were done in sufficient detail to discover
four major resource areas: Tutupan, Wara (comprising Wara 1 and Wara 2),
NU
Paringin and Warukin, which was subsequently renamed Wara 3. (Location is
shown in Fig. 6). Following the initial exploration over much of the CCoW,
MA

exploration from 1983 to 1986 focussed on the Tutupan and Wara coal deposits,
where large coal resources were delineated by geological mapping, followed by
trenching and drilling.
ED

The main focus of the exploration program in 1989 and 1990 was a drilling
program within the Paringin deposit. This was the first deposit within the CCoW
PT

to be developed, with mining commencing in 1991. The other deposits within the
Adaro concession are of lower thermal maturity (hence the calorific value is less)
CE

and as there were no export markets for these lower quality coals at that time,
the initial focus was on the higher coal quality of the Paringin deposit.
AC

Exploration between 1992 and 1994 then focussed on Tutupan. The aim was to
develop a mine plan to the standards of a feasibility study and to confirm
sufficient economically mineable reserves of suitable quality to supply the power
plant of Paiton Energy Corporation, in Java. Pre-mine drilling at South and
Central Tutupan was completed in 1996, with relatively shallow boreholes on
traverses spaced 200m apart. Additional trenching was also done at this time,
providing useful data on the location of seam subcrops and the depth of
weathering.

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Regional mapping throughout the Adaro CCoW was completed in 1995-96,

followed by a drilling program from mid-1997 until October 1998. The aim was
to provide enough drilling data to prioritise the remaining coal deposits and to
develop a long-term plan for mine development. From 2000 until 2016,
geological mapping and infill drilling continued, to support the increasing coal
production rate at the existing mines.

Following the start of mining in 1991, production from Adaro increased steadily

T
to 55.4 Mt in 2014, and was 50.4 Mt in 2015. The ASTM rank is mainly sub-

P
bituminous, with the majority of production from thick seams of the large

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Tutupan deposit. The low ash yield (below 3% at gross as received basis (GAR))
and low sulphur content of the Adaro product are reflected in the brand name

SC
Envirocoal. Approximately 70% of the coal produced is exported to SE Asia,
Europe and the USA, with the balance sold to domestic markets. The quality of
NU
the Tutupan resource and the other deposits within the CCoW are shown in
Table 5. (Location is shown in Fig. 6).
MA

Table 5. Quality of coal resources within the Adaro CCoW.

Location Total Ash Volatile Total Gross CV

ED

moisture matter sulphur

Tutupan 27.7 2.6 35.9 0.12 4,848
North Paringin 29.0 3.1 33.7 0.23 4,776
PT

South Paringin 30.8 2.9 32.7 0.21 4,651

Wara I 38.7 3.1 30.6 0.26 3,998
Wara II 43.6 3.1 28.9 0.23 3,657
CE

Values are at as received basis (arb). Calorific value (CV) units are kcal/kg, all
other units in percent. Data source: Adaro Energy, 2016, estimated at 31st
December 2015.
AC

After 14 years of coal production, the remaining coal resource base within the
CCoW of Adaro Indonesia is almost 5 billion tonnes (Table 6), with over 50% of
the total in the Tutupan deposit.

Table 6. Coal resources, Adaro Indonesia (units in million tonnes).

Location Measured Indicated Inferred Total

Tutupan 800 870 980 2,650

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North Paringin 150 140 140 430

South Paringin 16 64 37 117
Wara I 590 460 340 1,390
Wara II 72 237 65 374
Total 1,628 1,771 1,562 4,961

Estimated at 31st December 2015, reported according to the JORC Code, 2012
Edition. Data source: Adaro Energy, 2016.

P T
5.1.3 The anomalously higher coal rank

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A key factor in the successful development of the Adaro deposits is the presence

SC
of coal deposits of higher thermal maturity, or rank, than is typical of the
Miocene coal measures of the Barito Basin. As a direct result, the calorific value
was sufficiently high at the Paringin and Tutupan deposits to allow early
NU
economic development.
MA

These higher rank deposits are located near the NE margin of the Barito Basin.
Mason et al. (1993) describe the area of deeper pre-Cenozoic basement along the
eastern margin of the NE Barito Basin as the Barito Deep (Fig. 6), in contrast to
ED

the shallower platform to the west. The deeper basement results from greater
subsidence along what is now the eastern margin of the basin. Sediments were
PT

eroded from the recently uplifted Meratus Mountains, infilling the Barito Deep
and adjacent parts of the NE Barito Basin.
CE

Rotinsulu et al. (1993) have described the relatively high thermal maturity of the
Top Lower Warukin stratigraphy, in the NE part of the Barito Basin (Fig. 6).
AC

The contours of mean maximum vitrinite reflectance of this horizon, which is

stratigraphically below the major coal seams of the Warukin Formation, show a
definite rank increase to the east, towards the eastern margin of the Barito Basin,
with the highest ranks in and near the southern part of the Adaro CCoW.

A possible explanation of this rank increase along the NE margin of the Barito
Basin is:

1. Deposition of the Middle to Late Miocene Warukin Formation began at a

time of regional depositional regression, due to uplift of the Schwaner

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Mountains to the west, and the Meratus Mountains to the east (Satyana et
al., 2001). The uplift of the Meratus Mountains along the eastern margin
of the Barito Basin began in the late Miocene (Satyana et al., 1999).
Subsidence of the Barito Basin was ongoing, with the greatest subsidence
in the foredeep along the NE margin, against the rising Meratus
Mountains.
2. Thermal maturity (rank) of the coal on the NE margin of the Barito Basin,

T
within the Barito Deep, became higher than elsewhere in the basin due

P
to the greater depth of burial (Fig. 6).

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3. As a result of a strong Plio-Pleistocene episode of compression, there was
renewed uplift of the Meratus Mountains, and NNE-SSW trending folding

SC
developed within the NE of the Barito Basin (Rotinsulu et al., 1993). One
of these structures is the major asymmetric anticline that contains the
NU
Paringin and Tutupan deposits. The anticline brought formerly deeply
buried coal to the surface.
MA

5.2 Pinang deposit, Kaltim Prima Coal

ED

The CCoW of Kaltim Prima Coal (KPC) is within the Lower Kutai sub-basin (Figs.
3 and 5) of East Kalimantan. KPC is the largest coal producer in Indonesia, and
PT

one of the largest steam coal exporters globally, producing over 50 Mt in 2015.

5.2.1 Coal geology

CE

The geological and tectonic setting of the Kutai Basin is described by several
authors including Moss and Chambers (1999), and Satyana et al. (1999), while
AC

the development of the coal measures within the Kutai Basin is described by
authors including Daulay (1994), Friederich et al. (2016) and Nas (1994). The
coal measures of economic interest inside the KPC CCoW are mainly within the
Middle to Late Miocene Balikpapan Formation. Economically important coal
deposits are located within the northern part of the Mahakam fold belt, an area
folded along NNE-SSW trending axes during the Neogene. The Pinang deposit,
the most important of the KPC coal deposits, is located on the western side of the
Pinang Dome, a major geological feature shown in Fig. 7.

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The rank of coal measures near the Pinang Dome is the highest of any deposits
within the Balikpapan Formation of the Kutai Basin, reaching bituminous rank.
The combination of high rank, good quality (low ash yield and sulphur content),
multiple thick seams and proximity to the coast (15 to 20 km) is remarkable but
in addition, unusually deep water at the coast allowed the development of a large
coal terminal, enhancing the economic significance of the Pinang discovery,

5.2.2 Exploration history

T
In 1976 the exploration groups of Rio Tinto Zinc (RTZ) and the coal group of BP

P
agreed to jointly explore for coal in Indonesia. RTZ had already been exploring

RI
for minerals and coal in Indonesia since 1970. The Joint Venture successfully
discovered and then developed the important Pinang coal deposit and other coal

SC
deposits, within the KPC CCoW, in East Kalimantan.
NU
The exploration history is described by van Leeuwen and Muggeridge (1987)
and by van Leeuwen et al. (1988). In 1976 the RTZ BP Coal Joint Venture
commissioned a consultancy group to assess the coal potential of eastern
MA

Kalimantan with the target of identifying potential for a large (+100 Mt) surface-
mineable deposit containing steam coal with a minimum calorific value of 6500
ED

Kcal/kg (adb) and a sulphur content of <1% (adb). Literature sources used for
this study included reports by the Mining Service of the Netherlands East Indies
and private Dutch companies (1854-1940), oil industry reports (mostly post-
PT

1966), and maps and reports prepared by the Geological Survey of Indonesia.
From the mid-19th century until the early part of the 20th century Dutch
CE

geologists made many attempts to correlate and subdivide Indonesias Tertiary

sedimentary sequences on the basis of the moisture content of the contained
AC

coal. To this end they routinely collected coal samples during their regional
mapping surveys and in addition to routine analyses for moisture, analysed
some samples for ash, volatile matter, and calorific value, and in limited
instances for sulphur. The samples are kept at the Geological Museum in
Bandung.

The main conclusions of the consultants study (Strauss, 1976, unpublished)

were that the thickest coals of the required rank occurred associated with
Eocene sandstones in southeast Kalimantan, but these tended to have high

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sulphur and ash contents. Coal of the required rank with low ash and sulphur
contents occurred extensively in the Kutai Basin in Middle Miocene strata.
However, the evidence suggested that the delta in which the coals formed
prograded too quickly to allow persistent thick coals to be developed.
Furthermore, exposures of Middle Miocene coal seams appeared to be restricted
to tightly folded anticlines, thus limiting their surface-mineable potential.

As the literature study had failed to identify any targets that met the joint

T
ventures minimum requirements, the consultants tried a different approach.

P
This involved obtaining a number of coal samples originally collected by Dutch

RI
geologists and stored at the Geological Museum in Bandung and analysing them
for vitrinite reflectance. The Pinang area stood out. It had been investigated by

SC
Ubaghs (1937), prompting a search for his report. A handwritten (presumably
only existing) copy was located in the archives of the Geological Survey in
NU
Bandung. It described a large number of seams, interpreted to be of Middle
Miocene age, three of which were 2 to 4 m thick. Analytical results showed the
MA

coal to be of high quality. The coal-bearing strata occurred around a dome-like

structure, referred to as the Pinang Dome.
ED

A field inspection was carried out in early 1978. It showed that some 11 seams
outcropped continuously around the west flank of the Pinang Dome for a strike
length of at least 10 km, with several seams 3 m and locally up to 6 m in
PT

thickness. Moisture, ash and CV values were similar to those reported by Ubaghs.
The sulphur content was very low. The main negative aspect was that dips of the
CE

coal-bearing strata were relatively steep (10-30o), which combined with the
rugged hilly nature of the terrain was likely to put constraints on open-cut
AC

mining.

The work proved to be timely, as soon afterwards the government started the
tender process for eight coal blocks in eastern Kalimantan. The Joint Venture
successfully bid for the block containing the Pinang area.

A reconnaissance survey of the entire contract area (almost 8,000 km) outlined
four main targets in widely spread locations. The highest priority for follow-up
work was given to West Pinang because of the superior quality of its co al. The

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survey commenced in mid-1983, involving detailed mapping, extensive coal-

outcrop sampling and scout drilling. Ground magnetics proved to be an effective
tool for outlining areas of burned coal (baking of overlying mudstones had given
them magnetic properties). The results showed the presence of 23 seams, three
of which were 5-9m thick, within a stratigraphic interval of 950 m.
Unfortunately, the seams were spaced too widely to allow a multiple seam
mining operation, which would have offset to some extent the problem of
relatively steep dips.

P T
The breakthrough came in 1985 when two holes drilled in the southern part of

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West Pinang intersected a 6 m thick seam, which prompted a structural re-
interpretation. It was known from the initial mapping and scout drilling that

SC
thick coal occurred in the area, but the few outcrops observed at the time had
dips of 30-40 (later shown to be localized features related to faults), thus
NU
downgrading the potential. The re-interpretation suggested that the thick coal
seam intersected in the two boreholes could be correlated with the Sangatta
MA

seam in the northern part of the area, which thus extended further south than
previously thought, occurring in a broad gentle synclinal structure. Subsequent
drilling showed this to be correct, and in addition identified two thick seams of
ED

high rank coal below the Sangatta seam, considerably improving the resource
potential. When the project was transferred from the exploration team to a
PT

feasibility study team in early 1987 the in situ geological resource had increased
from 63 Mt in 1984 to 360 Mt.
CE

Table 7 contains the most recent estimate of resources and reserves within the
KPC CCoW. Table 8 lists the typical quality of the two main products, the Pinang
AC

and Melawan brands.

Table 7. Coal resources and reserves within the CCoW of KPC.

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Deposit Resource Reserve (Mt)

(Mt)
Sangatta 6,203 716
Bengalon 1,468 159
Total 7,671 875

Estimated in 2015, reported according to the JORC Code. Data source: Bumi
Resources, 2016.

T
Table 8. Quality of KPC coal brands.

P
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Brand Moisture Ash Volatile matter Sulphur Gross CV
Pinang 15.0 5.5* 40.0* 0.60* 6,150

SC
Melawan 23.0 3.5* 39.0* 0.20* 5,250

All values are at as received basis (arb), except those marked *, which are at air
dried basis (adb). Calorific value (CV) units are kcal/kg, all other units in percent.
NU
Data source: Petromindo, 2012.
MA

5.2.4 The anomalously higher coal rank

The anomalously high rank, therefore high calorific value, of the Pinang deposit
ED

was significant in its early commercial development. The Pinang deposit is

anomalous in two ways: 1) it is the only known example of high-rank Miocene
coal in the Samarinda fold belt being exposed in a synclinal structure, rather than
PT

in tightly folded anticlines; and 2) it is associated with an anomalous geothermal

gradient. The latter feature suggests that the coal may have been thermally
CE

upgraded, an interpretation supported by the fact that rank decreases rapidly

away from the Pinang Dome. KPC geologists initially believed that the heat (and
AC

domal structure) might be related to diapiric shale activity (e.g. van Leeuwen
and Muggeridge, 1987), most likely from low density moist shales rising
upwards. However, another possible explanation is that the Pinang dome
structure and higher coal rank results from intrusion by a shallow igneous heat
source. This possibility was raised by Daulay (1994) based on a reported high
gradient of vitrinite reflectance in a deep oil and gas well near Sangatta. Daulay
also mentions the localised presence of thermally altered coal in outcrop, with a
mean maximum vitrinite reflectance (R omax) from 1.60% to 2.03%. This

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corresponds to an ASTM rank of low volatile bituminous to semi-anthracite and

would be consistent with thermal alteration from a local igneous source.

Moore and Nas (2013) present extensive vitrinite reflectance measurements

acquired during coalbed methane exploration, and also from coal samples tested
during coal exploration as originally reported by Nas (1994). The results confirm
that coal rank increases towards the Pinang Dome, and that the highest heat flow
and ranks are on the southwest side of the Pinang Dome, rather than being

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concentric around the centre of the dome. They note that the geothermal

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gradient is unusually high near the dome, 50o C/km compared to the regional

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geothermal gradient of 27 o to 39oC/km. The authors also note that the area of
highest coal rank coincides with the presence of a well-defined positive Bouguer

SC
gravity anomaly, which is more likely to result from the presence of rocks of
higher density in the subsurface. In contrast, a mud diapir would be less dense or
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would be at the same density when compared to the surrounding sedimentary
rocks. Moore and Nas (2013) then conclude that the Pinang Dome and the
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associated elevated coal rank may result from the presence of an igneous
intrusive.
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KPC has provided exploration data and interpretations relevant to the origin of
the increased coal rank. The data, over an area including the Pinang Dome,
comprises a map of Bouguer gravity anomaly (Fig. 8) and a magnetic anomaly
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map. The map of Bouguer gravity confirms a positive gravity anomaly associated
with the Pinang Dome. However, the highest positive gravity anomalies are not
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in the dome centre, but are on the western side of the dome, near the area of
highest coal ranks.
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According to KPC internal reports, gravity data modelling indicates the presence
of a basement high below the Pinang Dome. The modelling also indicates the
presence of an intrusive on the western edge of the Pinang Dome, at a depth of 2
km below the surface (Fig. 9). These results suggest that an intrusive at depth, on
the western side of the Pinang Dome, has caused a high geothermal gradient
resulting in the development of increased thermal maturity (i.e. rank) of the coal
in the Pinang deposit, which is also along the western side of the Pinang Dome.

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However, this conclusion does not necessarily fully explain the origin of the
Pinang Dome, which appears to overlie a basement high. The possibility remains
that the origin of the Pinang Dome is at least partly related to the regional
geological history in the Mahakam Fold Belt of Palaeogene extensional tectonics
followed by Neogene compressional tectonics and basin inversion, as suggested
in KPC internal reports. The igneous intrusion may have then followed structural
weaknesses.

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5.3 Arutmin Indonesia

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5.3.1 Background

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Arutmin Indonesia (Arutmin) is a major Indonesian coal producer, holding a 1st
Gen CCoW. Arutmin was among the first group to sign a CCoW, in November
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1981. It was the largest of any of the CCoWs ever granted, with an original area
of 12,600 km2 or 1,260,000 ha, covering coastal areas of South Kalimantan and
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several nearby islands (Fig. 3). The previous mining history, in colonial times,
included underground mining at Pulau Laut, an island off the coast, and at
Gunung Batu Besar, at the northern tip of the East Senakin deposit (Fig. 10).
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Commercial production within the Arutmin CCoW began in 1988, at West

Senakin (Fig. 10). As noted by Febriadi (2010), the next mine was opened in
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1990 at Satui. The main coal terminal, at north Pulau Laut, was opened in 1994.
More mines were later developed, including those producing from lower rank
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Miocene coal measures. In 2015 coal production by Arutmin was over 25 Mt.

5.3.2 Coal geology

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The CCoW contains both Eocene and Miocene coal measures. The rank of the
Eocene coal is bituminous, while the Miocene coal is lower rank, sub-bituminous
and lignite (ASTM). The main exploration focus was high rank coal within the
Eocene age Tanjung Formation. As noted by Friederich et al. (1999), there is one
main economic seam. The unit below the main seam is dominated by fluvial
sandstone, which overlies a basal conglomerate directly above the Mesozoic
basement. The main seam is typically laterally continuous (Fig. 11). Febriadi

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(2010) notes that the Eocene deposits now occur within separate discontinuous
areas, as a result of later faulting and folding

Miocene coal deposits, within the Warukin Formation, are of lignite rank (ASTM).
The seams are locally up to 35 m thick at Sarongga and over 60 m thick at Mulia
(Friederich et al., 1995). The ash yield and sulphur contents are both very low
(Table 9).

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Table 9. Coal quality of selected coal brands of Arutmin.

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Volatile
Brand Moisture Ash Sulphur Gross CV
matter

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Sarongga 40.0 4.2 30.0 0.13 3,667
Ecocoal 36.0 4.4 30.6 0.28 4,058
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Senakin 11.0 12.0* 41.5* 0.75* 6,250
Satui 10 11.0 10.0* 42.0* 0.65* 6,300
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All values are at as received basis (arb), except those marked *, which are at air
dried basis (adb). Calorific value (CV) units are kcal/kg, all other units in percent.
Data source: Petromindo, 2012.
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5.3.3 Exploration history

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In late 1981, following the tender for several prospective areas in Kalimantan, a
CCoW was signed between PTBA, and the owners of PT Arutmin Indonesia
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(Arutmin). Arutmin was a joint venture company formed by two American

companies, Utah Exploration (Utah) and the Atlantic Richfield Company (ARCO),
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which had independently assessed the coal potential of Indonesia and separately
tendered for the area. There have been subsequent changes to the Arutmin
ownership, including majority equity by BHP Billiton from 1986, and the
acquisition by PT Bumi Resources and a related company in 2001.

The pre-signing history of one of the original tendering companies, Utah, has
been described by Alastair Grant (personal communication 2016). Utah initially
began researching the coal potential of Indonesia in 1974. A Bandung-based
geological consulting group provided valuable insights into prospective areas of

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Kalimantan by researching the available geological literature, including reports

from the colonial time.

Utah initially completed reconnaissance level visits to South and East Kalimantan
in 1978 when tenders were first called (Milligan et al., 1990). The Utah geologists
quickly focussed on coal targets of Eocene age in SE Kalimantan, with their
higher thermal maturity and calorific value than typical Neogene coals. The
targets were regarded as prospective for export steam coal. The location, near

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the coast, was suitable for the development of export infrastructure.

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The exploration history following the CCoW signing is described in detail by

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Febriadi (2010), referring to unpublished reports including those of Milligan and

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Shatwell (1982). In the first year, detailed field mapping was completed at what
was then regarded as the most prospective area, the Eocene coal measures of the
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Senakin Peninsula, while reconnaissance teams were covering many areas of the
rest of the CCoW concession area. These reconnaissance teams initially used
side-looking aerial radar (SLAR) imagery, which had been flown over the entire
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block, and available geological maps. Detailed field mapping was done in the
most prospective areas of the Eocene coal measures, and channel samples were
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taken at some coal outcrops.

After the first year, revised geological maps had been produced at 1: 250,000 and
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1: 100,000 scale, and the main coal deposits had been identified. During this
initial exploration, Milligan and Shatwell (1982) had characterised the
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stratigraphic framework of the coal measures within the Arutmin CCoW and
named the main stratigraphic units. The major structural elements of the area,
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i.e. the major faults and areas of folding, had been identified.

Drilling began in Senakin in 1982 and continued for several years. The drilling
results and coal quality data from core, were then used in resource estimates, as
input to a feasibility study. Blain (1992) notes that over the eight-year period
from the start of exploration, over 1,000 boreholes were drilled within the
Arutmin CCoW, totalling 50,000m. Commercial production from Senakin began
in 1988 for mainly export markets.

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Exploration drilling had also targeted other Eocene deposits within the Arutmin
CCoW, including Satui, northern Pulau Laut, and Ata. Satui (Fig. 10) was a large
deposit, which was known from Arutmins field mapping, including detailed
mapping in 1984 and 1985. By 1990, coal resources for the entire CCoW were
estimated at 2,280 Mt (Milligan et al., 1990), of which 949 Mt was measured and
indicated. Eocene bituminous rank coals comprised 33% of the total, the
remainder was low rank Miocene age coal.

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Arutmin quickly focussed on the Satui deposit. The ash yield of the unwashed

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product at Satui was lower than in Senakin, which was a marketing advantage.

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Initial drilling of Satui in 1988 delineated sufficient coal resources for early
development, and construction of a mine and barge port began in mid-1989. The

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first commercial shipment from Satui was made in early 1990, only 28 months
after the start of drilling there. The coal deposit at Satui had not been previously
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explored, and Arutmins exploration of Satui resulted in a significant new
discovery.
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In 2015 Arutmin produced 25.3 Mt, most of which was from the lower rank,
lower calorific value deposits at Mulia, Asam Asam and Sarongga (Bumi
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Resources, 2016). Only 7 Mt reserves remained of the Senakin deposit when

estimated in 2015 (Bumi Resources, 2016), suggesting near-depletion of what
was originally a large deposit of high calorific value coal. The quality of selected
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coal brands is listed in Table 9. Table 10 lists the most recent estimates of
resources and reserves within the Arutmin CCoW, estimated in 2012 in
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accordance with the JORC Code.

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Table 10. Coal resources and reserves within the CCoW of Arutmin.

Resource (Mt) Reserve (Mt)

Deposit (estimated in (estimated in
2012) 2015)
Senakin 392 7
Satui 262 43
Batulicin 174 14
Mulia 697 22
Asam Asam 321 147

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Sarongga 328 58
Undeveloped 203 7
Total 2377 298

Estimated in 2012 and 2015, reported according to the JORC Code. Data source:
Bumi Resources, 2016.

6. Conclusion

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The presence of coal seams of potential economic interest within the large

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Cenozoic sedimentary basins of Sumatra and Kalimantan had been known from
the oil and coal exploration that began in the mid-19th century. However, it was

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not until after the introduction of liberalized mining and investment laws in the
1960s that the modern coal industry of Indonesia began to develop. This
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liberalisation led directly to a tender by the Government of Indonesia in 1978, in
which experienced private sector mining companies were invited to bid for large
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concession areas in eastern Kalimantan that were regarded as highly prospective

for world-scale economic coal discoveries. Initial exploration by the holders of
these 1st Gen CCoWs, focussed on the best targets for export quality coal located
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near the coast or large navigable rivers. The resulting discoveries were quickly
developed into mines in the late 1980s and the 1990s, a lead time of more than
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20 years after the liberalisation of mining and investment laws that brought in
foreign investment and technology. The opening of the first mines marked the
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start of a transformative growth period during which Indonesia became the

worlds largest steam coal exporter, overtaking countries with a much longer
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history of coal mining.

Since the 1990s much of the coal exploration in Indonesia has been within areas
where the coal potential was at least partly identified from earlier modern
exploration work, for example within (or near) areas relinquished by the initial
CCoW holders. However, there have also been several new basin plays, where
exploration companies have moved into under-explored areas. Large coking coal
resources have now been delineated within the upper Kutai sub-basin, where
there is the potential for a coking coal export industry to develop. However, most
of the main coal-producing areas of southern Sumatra and eastern Kalimantan

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have now reached a relatively mature exploration stage. Future discoveries are
likely to be mainly incremental and near known coal resources.

The level of exploration for new greenfields coal deposits is now low, in response
to the depressed coal prices that prevailed between late 2013 and mid-2016,
with reduced export demand, and a more challenging regulatory climate of the
last few years. However, brownfields exploration adjacent to operating coal
mines is continuing. If the current challenges are resolved, exploration for new

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steam and coking coal deposits and for possible extensions of known deposits

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should resume within the remaining inadequately explored areas, ensuring

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ongoing Indonesian coal supply in future decades.

SC
The techniques used in greenfields exploration programs have evolved and
improved over the years, reflecting new the introduction of new technologies,
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and experience gained in these programs. With advances in drilling techniques,
lighter, more portable drilling equipment is now commonly used. The technology
of ground surveying and production of detailed topographic maps has greatly
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improved. Other techniques now in use include the acquisition of stereoscopic

high resolution satellite imagery (optical and radar), to develop new
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interpretations of structural and surface geology. Drilling and seismic data from
oil and gas exploration, and regional gravity data can now be accessed in some
areas to assist in generation of exploration targets. When a target or deposit is
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being delineated by drilling, airborne magnetometry and high resolution seismic

are techniques now available to assist the interpretation of sub-surface geology.
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These new techniques will be invaluable in the future search for coal in
underexplored areas.
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Acknowledgements

This paper would not have been possible without the generous assistance of
many colleagues in the Indonesian coal mining industry. In particular we are
grateful to Alastair Grant, Agus Budiluhur, Joseph Crisostomo, Doug Dunn, Elino
Febriadi, Bart Lucarelli, Dave Mason, Peter Mucalo, Chairul Nas, Peter Pieters,
Fred Robins, Setiawan, Ian Wollff, and Munir Zein. When an initial manuscript of
this paper was first being prepared many years ago, the late Dr Achmad Prijono

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generously gave his time and provided a lot of relevant detail on the start of the
modern coal mining industry. We gratefully acknowledge the assistance of Adaro
Energy and Kaltim Prima Coal in providing useful technical and historical
information. Finally, we wish to thank the three anonymous reviewers, who
made invaluable suggestions and contributions that have significantly improved
the manuscript.

This research did not receive any specific grant from funding agencies in the

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public, commercial, or not-for-profit sectors.

P
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FIGURE CAPTIONS

Fig. 1. Location of selected 1st Gen CCoWs in Kalimantan and the Shell Mijnbouw
contract area in Sumatra. The Sinamar deposit and the Ombilin mine in Sumatra
are also shown. Modified from van Leeuwen, 1994.
Fig. 2. The Shell Mijnbouw contract area in Sumatra. Deposit locations are from
published sources. Surface geology is simplified from 1:250,000 sheets published
by the Geological Agency, Indonesia: Sarolangun (Suwarna et al., 2007);
Palembang (Gafoer et al., 1995); South Bangka (Margono et al., 1995); Bengkulu
(Gafoer et al., 2007a); Lahat (Gafoer et al., 2007b); Tulung Selapan (Andi Mangga
et al., 1993); Manna and Enggano (Amin et al., 1993); Baturaja (Gafoer et al.,

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1993); Menggala (Burhan et al., 1993). Contract area boundaries are modified

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from van Leeuwen, 1994.
Fig. 3. Location of original areas of selected 1 st Gen CCoWs in Kalimantan and of

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the major coal deposits investigated in the 1980s. Modified from van Leeuwen,
1994.

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Fig. 4. Indonesian coal production, and export and domestic sales, 2000 to 2015.
Data source: International Energy Agency, 2016a, 2016b. Estimates for 2015 are
preliminary.
Fig. 5. The main on-shore Cenozoic coal-bearing sedimentary basins of Indonesia
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and surrounding areas.
1, West Aceh; 2, Bengkulu; 3, Central Sumatra; 4, South Sumatra; 5, Melawi; 6,
Ketungau; 7, Barito; 8, Asem Asem; 9, Pasir; 10, Upper Kutai; 11, Lower Kutai; 12,
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Tarakan; 13, Salawati; 14, Bintuni. Modified from Friederich et al., 2016. Tectonic
features modified from Hall and Morley (2004). Holocene volcano locations from
American Geological Institute, available online from Stanford University
Libraries, 2016.
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Fig. 6. Approximate thermal maturity (mean vitrinite reflectance) of the top of

the Lower Warukin Formation, in the NE Barito Basin, below the major coal
seams. Modified from Rotinsulu et al., 1993. Surface geology is simplified from
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1:250,000 sheets published by the Geological Agency, Indonesia: Buntok

(Soetrisno et al., 1994); Balikpapan (Hidayat and Umar, 1994); Amuntai
(Heryanto and Sanyoto, 2007); Sampanahan (Heryanto et al., 2007).
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Fig. 7. Surface geology of the southern part of the original KPC CCoW. The blue
polygons are the areas initially explored by KPC. Surface geology is simplified
from the Sangatta 1:250,000 sheet published by the Geological Agency, Indonesia
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(Sukardi et al., 2010), with structural features modified from van Leeuwen et al.,
1988.
Fig. 8. Bouguer gravity anomaly of the area near the Pinang Dome, KPC CCoW.
From KPC internal reports, with permission from KPC. Blue hatched lines
represent the interpreted location of normal faults. Irregular black lines are
access roads; the two straight lines are cross sections.
Fig. 9. Subsurface geological model of Line 1, derived from modelling of gravity
and magnetic anomalies. Location of Line 1 is shown in Fig. 8. From KPC internal
reports, with permission of KPC.
Fig. 10. Surface geology of the original contract area of PT Arutmin Indonesia.
Modified from Moore and Ferm, 1992, sourced from unpublished reports of PT
Arutmin Indonesia.

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Fig. 11. Cross section (best fit) derived from drill hole data through Eocene age
sediments, Senakin Peninsula. From Moore, 2015.

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Fig. 1. Location of selected 1st Gen CCoWs in Kalimantan and the Shell Mijnbouw
contract area in Sumatra. The Sinamar deposit and the Ombilin mine in Sumatra
are also shown. Modified from van Leeuwen, 1994.
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Fig. 2. The Shell Mijnbouw contract area in Sumatra. Deposit locations are from
published sources. Surface geology is simplified from 1:250,000 sheets published
by the Geological Agency, Indonesia: Sarolangun (Suwarna et al., 2007);
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Palembang (Gafoer et al., 1995); South Bangka (Margono et al., 1995); Bengkulu
(Gafoer et al., 2007a); Lahat (Gafoer et al., 2007b); Tulung Selapan (Andi Mangga
et al., 1993); Manna and Enggano (Amin et al., 1993); Baturaja (Gafoer et al.,
1993); Menggala (Burhan et al., 1993). Contract area boundaries are modified
from van Leeuwen, 1994.

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Fig. 3. Location of original areas of selected 1 st Gen CCoWs in Kalimantan and of

the major coal deposits investigated in the 1980s. Modified from van Leeuwen,
1994.

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Fig. 4. Indonesian coal production, and export and domestic sales, 2000 to 2015.
Data source: International Energy Agency, 2016a, 2016b. Estimates for 2015 are
preliminary.
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Fig. 5. The main on-shore Cenozoic coal-bearing sedimentary basins of Indonesia
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and surrounding areas.
1, West Aceh; 2, Bengkulu; 3, Central Sumatra; 4, South Sumatra; 5, Melawi; 6,
Ketungau; 7, Barito; 8, Asem Asem; 9, Pasir; 10, Upper Kutai; 11, Lower Kutai; 12,
Tarakan; 13, Salawati; 14, Bintuni. Modified from Friederich et al., 2016. Tectonic
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features modified from Hall and Morley (2004). Holocene volcano locations from
American Geological Institute, available online from Stanford University
Libraries, 2016.
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Fig. 6. Approximate thermal maturity (mean vitrinite reflectance) of the top of

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the Lower Warukin Formation, in the NE Barito Basin, below the major coal
seams. Modified from Rotinsulu et al., 1993. Surface geology is simplified from
1:250,000 sheets published by the Geological Agency, Indonesia: Buntok
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(Soetrisno et al., 1994); Balikpapan (Hidayat and Umar, 1994); Amuntai

(Heryanto and Sanyoto, 2007); Sampanahan (Heryanto et al., 2007).

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Fig. 7. Surface geology of the southern part of the original KPC CCoW. The blue
polygons are the areas initially explored by KPC. Surface geology is simplified
from the Sangatta 1:250,000 sheet published by the Geological Agency, Indonesia
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(Sukardi et al., 2010), with structural features modified from van Leeuwen et al.,
1988.

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Fig. 8. Bouguer gravity anomaly of the area near the Pinang Dome, KPC CCoW.
From KPC internal reports, with permission from KPC. Blue hatched lines
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represent the interpreted location of normal faults. Irregular black lines are
access roads; the two straight lines are cross sections.
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Fig. 9. Subsurface geological model of Line 1, derived from modelling of gravity

and magnetic anomalies. Location of Line 1 is shown in Fig. 8. From KPC internal
reports, with permission of KPC.

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Fig. 10. Surface geology of the original contract area of PT Arutmin Indonesia.
Modified from Moore and Ferm, 1992, sourced from unpublished reports of PT
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Fig. 11. Cross section (best fit) derived from drill hole data through Eocene age
sediments, Senakin Peninsula. From Moore, 2015.
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COGEL_2016_594 International Journal of Coal Geology

Highlights
Liberalization of mining and investment laws was a precursor to modern
coal exploration.
Initial exploration focused on high quality steam coal targets in Kalimantan.
Major discoveries were developed quickly into world class mines.
Indonesia rapidly became the worlds largest steam coal exporter.
More recent coking coal discoveries were made in under-explored basins.

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