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with Sukusen Soemarinda, Senior Vice President, Pertamina

25.10.2007 / Energyboardroom

Exploration and Production are the backbone for any O&G company. Do you think Upstream has the place it deserves within Pertamina’s priorities?

In any oil and gas company, upstream has to be the priority because it is the activity that adds value and generates revenues for the shareholders. However, since a company’s image among the general public is forged through a relationship at the downstream level, upstream is sometimes not given the vital resources it needs in order to invest. This has been the case in Pertamina for several years, though fortunately things are starting to change. We can see that in Pertamina’s 2007 budget, 1 billion dollars or nearly 70% of the total (1.4 billion) were allocated to upstream activities, which is a more appropriate distribution of funds than what was seen in the past.

Pertamina has announced that it aims to double production to a level of 300 000 bpd by 2010. How are you planning to strike a balance between optimizing existing fields and going into new areas in order to reach this ambitious goal?

Following the regulatory changes which turned Pertamina into a limited liability company, two subsidiaries were created: PT Pertamina EP which signed with BPMIGAS on existing areas under Pertamina’s control, and PT Pertahulu Energi which is handling the company’s interests in new blocks. Both of these subsidiaries are under my responsibility, as head of Pertamina Upstream.

Pertamina has a priority to increase production, so we are focusing on the optimization of our existing fields. In total they add up to 160 fields, for the most part old and scattered around large areas covering 140 000 sq. km of the Indonesian territory. In order to increase production, we will need to develop strategic partnerships with capable companies who have, for example, expertise in secondary and tertiary enhanced oil recovery (EOR).

As we cannot afford to continue depleting our existing fields without finding new reserves to replace them, our strategy is also to invest in exploration. In this regards Pertamina is developing projects and looking into further opportunities in the eastern part of Indonesia, which is where the country still has great potential for O&G. Pertamina is now ready and willing to take risks in new areas, because relying on our aging fields will not be enough to allow us to reach our objectives for growth. Of course, exploration in remote areas and offshore will require the implementation of new technologies which we will get from international partners.

How is Pertamina dealing with the fact that it now has to compete for blocks as a regular PSC through tenders? Particularly with regards to areas in eastern Indonesia where it has little expertise?

Although it is true that Pertamina now has to compete through tenders with the big oil companies for the best blocks, our view is that if we can’t beat them, we should join them. This is particularly the case with regards to the opportunities in eastern Indonesia, which are mainly blocks in deep sea areas. This company has little if no experience in deepwater operations, which is why we are joining with partners possessing expertise in those activities. A partnership with Statoil, now StatoilHydro, is already in place, and there are talks with other deep sea experts. Through these alliances, Pertamina is looking to acquire the necessary knowledge, technology, and capital to be successful in deepwater operations. Our goal is to eventually be able to run those kinds of projects by ourselves.

Many of the world’s best known national oil companies (NOCs) have become highly internationalized players over the last several years. Does Pertamina plan on following a similar path overseas?

Our current upstream strategy is still concentrated on our domestic acreage, it is accounting for about 80% of our activities. Beyond that, the company has defined three-ring-priority which illustrates our overseas ambitions. The first ring is consisting of Southeast Asia, where Pertamina is becoming an active player and is already operator in countries like Malaysia and Vietnam. The second ring includes the Middle East and North Africa, regions in which the company is growing but holds only working interests, with the exception of a block in Libya where we act as operator. The third ring extends to the rest of the world, where there may be interesting opportunities in the future but we will move more slowly because of the enormous differences in terms of geological, cultural, economical and political characteristics and regimes. For example, Pertamina is currently discussing the possibility of investing in Ecuador with other partners. It is worth remembering that, as the national oil company of Indonesia, sometimes our foreign activities are not only business motivated, but can also be driven by intergovernmental initiatives for cooperation.

Geothermal development is another important area that is under Pertamina Upstream’s responsibility. What role will this alternative energy source play in the company’s future?

This company currently has 15 working areas in the geothermal business, which as everyone is aware, has great potential in Indonesia. Experts say the country’s potential is about 27 000 MW, yet the current output is of only 850 MW, of which Pertamina accounts for 152 MW. These numbers are estimated to increase to a total national output of 2 000 MW in 2010, as we and other companies expand the capacity and build new plants. Although geothermal power requires a high initial investment and is not as profitable as O&G in the current context, we consider it to be a very prospective business for the long term.

To observers, it is not very clear if Pertamina’s new status means that it is regarded as the Indonesian NOC or simply as a PSC. To what extent should it have a privileged position in Indonesia’s O&G sector?

Being 100% government-owned makes us Indonesia’s national oil company, a status which implies certain responsibilities towards the government and the people, but should also provide us privileges within Indonesia’s Oil & Gas industry. For example, we ask the government for priority or first right of refusal on options for contracts that are about to expire, that is in order to have the opportunity to obtain at least a small share of the block. Another request, as a NOC, is to have the possibility for direct negotiation with the government for obtaining new blocks not included in the list for bid round. This does not mean that Pertamina is not going to participate or compete in tenders; once the tender process has begun we will go by the rules as all other PSCs must do and strive to win. Pertamina was in fact recently awarded its first block through tender, in a joint venture with StatoilHydro, which is a big step for us in this competitive industry.

How is Pertamina’s relationship with the local supporting industry?

According to regulations, at least 30% of the procurement should include local component. Pertamina has a good relationship, with its many suppliers, based on trust and customer satisfaction. In the current context of very tight equipment availability, it is more than ever essential to be in close cooperation with the suppliers, whether they are Indonesian or foreign.

What is Pertamina’s main strategy on gas production, amid growing internal demand and an ongoing debate over domestic consumption needs vs. LNG export revenues?

The government states that gas production should be destined in priority for the domestic market, leaving a possibility of exporting it only in the case of excess capacity. The problem is that many people in Indonesia still consider that gas should be very cheap, and expect us to supply it for local energy demand at very low prices. But Pertamina is now a company which has to think in terms of revenues and profits, which is why naturally we are only interested in selling domestically if the price is competitive, compared to LNG for example. With such an extensive working area, Pertamina can produce gas both for the local and international markets and we will have to see how this matter evolves but at least it is encouraging to see that the price of gas in Indonesia is increasing.

How is Pertamina Upstream going to contribute to the company’s fulfilment of its ambitious objectives for growth over the coming years?

Pertamina’s dream is to become a world-class O&G company in the future. In order to reach this goal, we will have to go through several phases. In the first one, where we are today, the focus should be on building all the necessary foundations. Following that, Pertamina should achieve operational excellence and become a major NOC in the region. Finally, the company will have all the necessary attributes to be a major player in the international O&G arena. This process can take 10, 12, or 15 year. It may seem like a long time, but these are objectives that cannot be reached overnight. Being a world-class company not only means increasing production in terms of volume, but also achieving good governance and developing a strong corporate culture.

Which are the main goals you set upon yourself a year ago when you took upon this important position?

When I was appointed last year, my main personal objective was to contribute to change the mindset of the people in this Upstream Directorate. This has to be the major activity within Pertamina, because its success will determine how big the company can grow and how far it can go. I am convinced that Pertamina has not only to operate onshore in low risk areas, but should also move to new blocks in riskier but highly potential remote areas. I am a geologist and explorationist, which by nature makes me a risk taker. You could say that ‘danger is my business’. This is the kind of attitude that will take Pertamina’s production up to dramatic new levels.



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