OIL AND GAS

Indonesia 2018 | ENERGY & MINING | B2B

International oil companies have to turn to alternative subsectors and partnerships to seek further opportunities in a low-price environment.

Arividya Noviyanto
ARIVIDYA NOVIYANTO
President & General Manager
Total E&P Indonesia
Yang Xiao
YANG XIAO
Chief Representative Indonesia
China Petroleum Technology & Development Corporation (CPTDC)

On January 1, 2018 Total handed over one of Indonesia's biggest oil and gas blocks to Pertamina. What has the process been like?

ARIVIDYA NOVIYANTO Total started in Indonesia in 1967 and became an operator of the Mahakam Block in 1970. We drilled exploration wells and discovered the first oil field called Bekapai. After long discussions with various Indonesian governments over the years, it was decided in mid-2015 that the block would be handed over to Pertamina as the new operator with a 100% interest, though with the possibility of Total and INPEX to farm-in or share-down in the block up to 30%. In mid-2015, we started discussing the transition arrangements and the farm-in possibilities. However, our main focus was on the transfer of operatorship because such a large operation needed to be transferred with extensive preparations so that the whole process went smoothly.

CPTDC has a presence in 53 countries with 70 overseas facilities. Where does Indonesia fit in the global portfolio?

YANG XIAO The Indonesia branch is increasingly important for our global company. In 2016, we signed an agreement with a manufacturer in China, both for downstream and upstream. We focus on the downstream oil industry, construct pipelines for LPG and LNG, and work as an EPC contractor. At present, selling is difficult because the price of the oil has fallen and profits are low. We are looking to expand in the energy sector, mainly with pipelines. The market in Indonesia is not as large as Iran or the Middle East; however, it has great potential. We are now looking to establish a branch primarily to organize a more localized production. My main focus is to find potential local partners to work with.

What are the company's future ambitions in Indonesia?

AN In exploration and production (E&P), we continue monitoring certain discovered areas and evaluating new prospects in Indonesia; however, given the competition with other countries under the current oil price conditions, I am not sure that we will see any business deal here in the near future. However, this does not mean we will stop doing the work here. As a business entity, we will continue to look at the opportunities. There may be other opportunities on the other side of the energy business, like in renewable energy and LNG businesses. We have a strong, emotional connection with Indonesia, having been here for 50 years.

YX For now, our main focus is to work with our local partners because they enter the tenders on projects directly, and we support them. We bring the expertise, and the partner provides the knowledge of the local system. That is why we want to find a strong local partner. Our company initially believed this market did not compare with others, such as Iran, where profits can be USD1 billion a year or Abu Dhabi, with USD300 million. This is a much smaller market; however, there is a great deal of potential. We first need to find a partner and then employ more people with different specialties.

What are the challenges to IOCs here in addition to low oil prices?

AN In the current situation where oil prices are still considered to be low and the attractiveness of the block offer is low, it does not really help to introduce new fiscal terms that are basically comparable to the previous ones. Most of Indonesia's oil and gas production comes from mature and aging fields with significant declining rates. It is necessary to implement advanced technologies to reduce the decline rate and extend the life of production from existing fields, as well as to explore the undeveloped reserves to improve reserve replacements. These efforts require major capital investment, and the industry needs more attractive fiscal terms and stable regulations for the investors.

YX Because of the rapid fall in oil prices and consequently the fall in profits, especially in China, we produce more than we need, and, therefore, need to export. Our competition is stronger than before. Should profits slow down, we will try to expand. This is an opportunity for all Chinese companies, especially CPTDC, because Europe has advanced technology but it is more expensive whilst Chinese prices are lower. Right now, our technical quality is not vastly different from theirs, especially in the mid-level category market, where we can likely win more business. Our prices for materials and human capital are lower. Another advantage is that we are a national company and want to grow the Indonesian market.