"The border possesses a huge amount of unexplored oil and gas reserves, according to data obtained by our team," Indonesian Energy and Mineral Resources Minister Jero Wacik was quoted as saying by The Jakarta Post after meeting this week with Papua New Guinea's Public Enterprises and State Investment Minister Ben Micah.
"Economically, it would be easier to jointly explore these untapped resources," Wacik said, adding that a joint effort was also important "to maintain security along our border."
The Indonesian province of Papua shares a 472-mile border with Papua New Guinea.
The minister didn't specify which blocks the countries plan to develop but said they would also improve much-needed infrastructure in border areas to support the partnership.
Karen Agustiawan, chief executive of Indonesian state-owned oil and gas firm PT Pertamina, who also attended the meeting between the two countries, said the company was interested in joint studies with PNG's national oil company.
U.K. consultancy Wood Mackenzie estimates Papua New Guinea has 26 trillion cubic feet of natural gas.
Indonesia has gas reserves of 104.25 trillion cubic feet. Formerly a net oil exporter in the Organization of the Petroleum Exporting Countries, Indonesia suspended its OPEC membership in January 2009 to concentrate on meeting growing domestic demand.
But it has struggled to attract sufficient investment to meet growing domestic energy consumption because of inadequate infrastructure and a complex regulatory environment.
China last year offered nearly $3 billion in loans to Papua New Guinea for infrastructure projects and also signed a long-term deal to buy some of the country's first exports of natural gas, The Wall Street Journal reports.
Separately, Japan's Osaka Gas announced Wednesday that it had agreed to pay $204 million to acquire stakes in natural gas assets in Papua New Guinea owned by Australia's Horizon Oil Ltd.
Papua New Guinea's Prime Minister Peter O'Neill, visiting Japan in March, said his country was well-placed to become a strategic supplier of Japan's long-term energy needs and urged Japanese investors to take part in Papua New Guinea's booming gas and mining sectors.
During that visit O'Neil said Papua New Guinea was at a critical stage in its development as a nation, especially regarding petroleum resources.
"The record capital spending now under way in the petroleum sector will slow significantly from this year unless we bring new projects to the approval and development stages soon," the Australian Broadcasting Corp. quoted O'Neill as saying.