with Herry Wibiksana, President and General Manager, AWE Indonesia
How do you see the transformation in the Indonesian upstream industry in 2012?
As everyone knows, Indonesia’s oil production has been in decline and we are no longer an OPEC member. However, over the same period of time Indonesia‘s total oil and gas production has increased to around 2.6 million boe/d and interest has shifted from oil deposits to gas deposits. There is also a transition in the location of Indonesia’s production, which has traditionally been concentrated in the West of Indonesia whilst the East has been barely explored. The government is now focusing on encouraging E&P in the East of Indonesia and several companies are moving their operations to this region. These two transitions in Indonesia’s upstream industry are both clear and evident in 2012.
Geologically speaking, Indonesia is still interesting compared to other countries in Southeast Asia and every year there are more companies coming from abroad to conduct E&P operations here. Indeed, the Tangguh field was part a new generation of gas fields, the latest of which include the gas discovery of the Abadi field in Arafura Sea, Matindok Block in offshore Sulawesi, as well as Kasuri Block in West Irian. Oil is not the primary focus in exploration anymore and companies are predominantly looking for gas in Indonesia.
The third transition in Indonesia’s upstream industry is away from onshore and towards offshore production. One of the reasons for this is because onshore fields on Java, Sumatra and on West Kalimantan are mostly mature fields. Companies are looking for major new discoveries in unexplored territories. Although there are still prospects in the East of Kalimantan and Sulawesi, the major finds will henceforth be offshore.
Another factor pushing companies away from onshore production is the issue of land acquisition. Sometimes an E&P company will have to deal with private owners and sometimes with the Ministry of Forestry. Often it is more difficult to free up the land from private owners although there are also overlapping jurisdictions between the Ministry of Forestry and the Ministry of Energy and Mineral Resources which should be resolved to streamline the process, which is not always easy and it holds up development. Nevertheless, it should be stated that these obstacles are manageable with time and through negotiation and many companies are still coming to Indonesia.
The final point to mention is that with the transition towards offshore E&P the cost of operations is increasing and smaller players do not have the capabilities to undertake this kind of operation. Deepwater offshore prospects will therefore be developed by medium to large E&P companies.
Given the current production cycle, which companies should be participating in the future of exploration and production in Indonesia?
Over the last 5 years the government has sought to provide domestic oil and gas companies with greater opportunities to develop. However, ultimately oil and gas is not like a manufacturing operation, in which you can build a factory and start receiving production revenues 2 years later. It may take 10 years to process an oil and gas asset from the exploration stage to finally putting it on-stream. It is a high-risk, high-cost and long-term business. The government therefore needs to have serious players operating in the country who understand fully the nature of the oil and gas business and who are willing to make a commitment to invest in the country. An offshore exploration well at a 1000m depth may cost around $15 million and there is no certainty that you will find anything. In deepwater, this cost can escalate to 10 times this amount.
Therefore, from one perspective it is good that national oil companies are given an opportunity, but from another, we need to know that national oil companies are serious about developing Indonesia’s assets and have the capabilities to do so. In the meantime, there will remain a place for international companies with experience and technology.
Having worked with one of the super majors in Indonesia, in ConocoPhillips, how do you see the differences in challenges confronting a company like AWE?
The main challenge is the number of resources available to us in a medium-sized company. AWE’s operations are spread across Australia, New Zealand, USA, Yemen and Indonesia. AWE’s strong team with brilliant skill set have the capacity to operate fields and produce oil and gas both onshore and offshore. Our resources are designed to be sufficient for those operations without excess or waste. This makes sense financially and in terms of efficiency, but if there is expansion into a new direction then it is a great challenge to build up the resources to support this movement. When I was managing a team in ConocoPhillips it was very easy to set up an ad hoc team with the right level of expertise required to execute a new project. In a smaller company like AWE, I have to take on much more personal responsibility and train people to move in these new directions from within the existing operation in Indonesia.
At the same time a smaller company is more entrepreneurial, whilst a larger company is more centralized. This affords me more flexibility in operations. ConocoPhillips clearly exists in a different league as it is one of the seven sisters. What attracted me about AWE is that it offers the chance to start from a relatively low base and to take the company to great heights. My experience with ConocoPhillips in Indonesia will no doubt help the company to grow their footprint in the country. This is not just about assisting AWE, but rather about helping Indonesia. If I had remained with ConocoPhillips, my contribution to Indonesia would have plateaued. The attraction of working for a company like AWE is that my contribution to Indonesia has grown significantly and thus to the company.
How do you see AWE fitting within Indonesian E&P operations?
Until recently AWE just had assets in East Java, operating 3 blocks and owning 2 non-operated blocks. These blocks were all at the exploration stage. In one of the non-operated blocks known as the Bulu Block there was a gas discovery made by the operator in 2008 with estimated reserves of around 200bcf: the Lengo Field. It is an offshore block located around 90km from the coast and the challenge in developing this small field lies in the lack of infrastructure. AWE is going to have to build a pipeline to take gas from this field at relatively high cost.
Looking at AWE’s operated blocks, then adjacent to Bulu lies the AWE-operated Titan Block. AWE acquired this block in November 2010 and this is the second year of exploration. AWE is committed within its PSC to drill within the first three years. This will be performed on the Atlas prospect and management has decided to accelerate exploration drilling to carry this out in 2012 rather than waiting until the third year. Of course, this is warmly welcomed by BPMIGAS. The Atlas 1 well is due to be drilled in April this year. The distance to the discovery in the Bulu block is only 25km so we are hoping for a similar find. If there is another discovery on Atlas 1 then we would propose to develop this prospect simultaneously with the Bulu block operated by our partner in order to reduce costs by building a shared pipeline and minimize the risk of the project.
Following acquisition from Genting in February of this year, AWE now has 2 new blocks in the Natuna Sea: Anambas Block and Northwest Natuna Block. Anambas is still in the exploration stage, but Northwest Natuna has an undeveloped oilfield, Ande Ande Lumut, which already has a plan of development approved by the Minister of Energy and Mineral Resources last year. AWE has informed the government that we are committed to developing this project and hopefully within the next 4 years the project will be completed. With the acquisition of the Ande Ande Lumut field, AWE is changing dramatically in Indonesia with new responsibilities in both exploration and development. In my experience, developing a field is challenging there are many new issues to be addressed. Adapting to take on these new responsibilities is now the central focus for AWE.
What stage is this field at and when will it come on-stream?
AWE is currently setting up the project development team and the organizational structure for developing this asset will need approval from BPMIGAS. Once the organization structure is approved and people appointed to the key roles then we will be able to start with the infrastructure development. However, the key priority at this stage is building our human resources base. After this AWE will be able to proceed to front end engineering and design (FEED) and Engineering Procurement and Construction (EPC). Obviously, with great support from government, we are pushing to make this process as fast as possible to put the field on stream in the next 4 years time frame.
Given these changes, where will we see the company in 5 years time?
I would like AWE to be seen as one of the key players in Indonesia’s upstream industry and for people to know its name in Indonesia. With our expansion into Ande Ande Lumut production, I see AWE playing an increasingly large role in the country in the near future.
AWE is also diversifying its operations in Indonesia and will soon become involved in unconventional hydrocarbon resources. We have met with Director General Evita Legowo who has awarded the company the permit to carry out joint studies and AWE is actually the first company in Indonesia to perform an unconventional hydrocarbon joint study in an open area, or not belonging to any company. This project is located in central Sumatra and AWE will be able to use its expertise and experience from the USA in the Sugarloaf shale gas project as well as from the Perth Basin in Australia and apply it to Indonesia. Pertamina is the only company to have completed an unconventional hydrocarbon joint study within their owned block and there are many other companies looking to carry out joint studies in the country.
The future of AWE in Indonesia looks strong considering our financial position. This will facilitate the expansion of our exploration activities in East Java and in Natuna, the development of the Ande Ande Lumut field and our unconventional studies in Sumatra.
What do you feel that you have been able to bring to AWE’s development in Indonesia as an Indonesian yourself?
I was educated in the United States and have been working for international oil and gas companies in Indonesia, Canada, USA, and now for an Australian company. Exposure to various corporate cultures and leadership opportunities in my carrier have given me very precious advantages and experience. Being Indonesian I have a natural advantage when it comes to communication and building relationships. Relationships are very important all around the world but especially so in Indonesia. It is advisable to start from an informal discussion no matter the size of the issue being discussed. Having been in the industry for more than 25 years, I have a head start in this. Once participants are acquainted and informal consensus is generated you may begin the process of creating a formal agreement. Understanding these processes is the main strength I can bring to the business of AWE in Indonesia, however I also bring advantages to the government and local authorities who can speak to me on their own terms.
What would be your final message on behalf of AWE to our readers?
AWE attaches great importance to its presence in Indonesia; indeed Indonesia is a significant focus area for the company. AWE entered Indonesia in 2006 as an exploration company; we set up an office and grew a portfolio of exploration blocks. Recently the company’s strategy in Indonesia has progressed to development and to exploring the potential of unconventional resources. We are very excited to be in Indonesia and we are committed to grow here whatever the challenges.