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Interview

with Supramu Santosa, President CEO, Star Energy

14.09.2007 / Energyboardroom

You have had a long and successful career in different positions all over the O&G industry working for others. What was the vision behind the creation of Star Energy in 2003?

After working for over 35 years with different multinationals, I resigned from Gulf Indonesia Resources in 2002 when it was taken over by Conoco Phillips. During those times, oil prices were very low and I perceived that there were many marginal fields that had become too small for the big oil companies but that could still be interesting for smaller players. I decided to create the company based on this window of opportunity, with the strategy of acquiring some marginal fields and optimizing their production. My long background and network in the Indonesian O&G industry helped me find partners interested in financing these kinds of projects.

Luckily enough, three months after forming Star Energy, Conoco Phillips decided to sell their interest in the Kakap Natuna PSC. They considered that production levels at 8 5000 bpd and 58 mbpd was too little for them, and also predicted that those numbers were going to decline quickly. So this became Star Energy’s first acquisition, and thanks to the ensuing rise in oil prices and our capacity to maintain production levels it has allowed us to further grow our asset base.

Your experience goes from being a field worker in your youth to becoming President of one of the fastest-growing O&G companies in Indonesia. How has this diversified background influenced your management stile?

Throughout my career I worked in many different areas within the O&G industry, such as operations, marketing and finance. In fact, my career began in 1968 as a roughneck when I was just out of high school and did not have enough money to go directly to college. I spent 7 years on the field, first in Madura and then in Seram, before finally saving up enough to go pursue my studies in the United States.

I believe that my background allows me to really understand my employees and to pay a great deal of attention to detail. I like to go out to the fields and am very close to people because of my own time working in operations for many years. My experience all over the industry also gives me a global perspective of the business. In addition, I kept in touch with the academia and fresh new ideas during my 7 years as lecturer in the University of Indonesia. My 35 years in O&G also gave me the chance to meet many people in the industry.

Therefore, I would say in summary that a mix of experience, education, and networking are the main features that explain my management stile.

How do you see the situation for exploration and production in today’s Indonesia?

Finding new oil has become very difficult, because all of the areas with easy oil have already been extensively explored. This has all happened basically in the basins in western Indonesia, which is why now everyone is looking to the east as the future of exploration. However, these are frontier areas which imply a great deal of risk and high costs.

This is why Indonesia needs the big oil companies to invest now more than ever. Many people in Indonesia mistakenly believe that since now there are national companies like Star Energy, Energi Mega Persada and Medco there is no longer a need for the foreign players. They are wrong because we do not have the means to go into such risky and expensive projects. In order to lure the IOCs back to Indonesia, the country has to position itself so as to convince them of the benefits of coming here instead of going to other regions like the Gulf of Mexico or Africa. We have to be very competitive in order to reach the foreign investment the country needs. The populist trend of some politicians and the heated debate about cost recovery are not helping the investment climate.

Star Energy’s strategy is therefore to concentrate on proven basins in the western part of Indonesia. The only production that we currently have is Kakap, but it is declining. Our aims are set on new discoveries which will come from the 3 blocks we are exploring.

What are the expectations for your geothermal business? Are there any plans to go into other energy sources?

As everyone knows, Indonesia has a huge potential in geothermal energy. Star Energy made its incursion into geothermal energy in 2004, when we acquired the Wayang Windu power generation project from Deutsche Bank. Our subsidiary has exclusive right to develop up to 400 MW of electricity-generating capacity there, but the current capacity is only of 110 MW. For this reason, we are doing expansion works that will get the capacity up to 220 MW by early 2009 and eventually up to the 400 MW level by 2011.

There are no current plans for developing other energy sources, because for now we are focusing on making new oil and gas discoveries and expanding our geothermal plant’s power capacity.

What do you think about Indonesia’s overall legal framework for the O&G industry?

I believe that the Production Sharing Contract is a good system which has proven to be successful in the past. The issues under debate recently are the fiscal terms of the contract, meaning the split and taxes. A study by PWC concluded that Indonesia’s PSC fiscal terms were not very favourable to O&G companies. The government needs to take a look at these findings and provide better incentives, especially if we aspire to get the IOCs to go invest in remote areas. Exploration in the eastern Indonesia will require the participation of heavyweights like BP, Conoco Phillips, Eni, Total, etc.

Your vision is to be one of the fastest growing companies in the O&G sector in Indonesia, and to become a partner of choice in the sector. What is your current strategy and hat kind of partnerships are you looking for?

Our current strategy for growth is to focus on exploration. Star Energy will start drilling in the first or second quarter next year in Sebatik, and in Banyumas seismic studies will be conducted in 2008. Our company is also continuing to look for new prospective exploration blocks. There are no precise plans for going overseas for the moment, but it is something we could consider.

When Star Energy talks about being the partner of choice, it is in reference to our relationship with all of the stakeholders. This means having local authorities happy to have us in their regions, keeping our employees satisfied and motivated, and proactively collaborating with the Indonesian government, among others. We are a very small player when compared to the major oil companies, so in order to compete we have to strive to be the best in everything we do. This is why one of my main initiatives just after creating Star Energy was to install a corporate culture that encourages employees to become the best they can be.

How do you attract and maintain the right people in such a competitive environment for the best oil and gas professionals?

Many of Star Energy’s employees have come from big oil companies where they considered that the corporate structure limited their ability to grow professionally. With us they feel that they have the chance to realise their full potential, because we give them greater opportunities and responsibilities. Thanks to this we have a very motivated team, who knows that whenever the company does well they are also going to see the benefits. One great example is our team involved in geothermal which has attained some excellent drilling results. Under Unocal’s operation, the average well capacity was of only 10 MW, yet we have managed to reach an average of 28 MW per well. This is the result of great skill and engineering. It is amazing to see what people are capable of when they are given trust and opportunities to grow.

What is your assessment of the rising of Indonesian O&G companies over the last several years?

There is a trend in the Indonesian O&G industry of more local companies appearing on scene. In the past, there was a generalized idea that this was a sector exclusively for foreign companies. This has gradually been changing over the last several years, as more Indonesian companies like Star Energy have found success. However, national companies often have to face the problem of financial restraints. In addition, the market today is very different from when Star Energy was created, because the possibilities of acquiring producing fields at a reasonable price are very low. We were lucky to have started out at a very low moment of oil prices, just before the boom began. Today, new companies have a harder time because they probably have to start out with exploration which is expensive and risky.

Based on your personal achievements, what would you say are the 5 keys to having success as a small/medium player in Indonesia’s O&G sector?

Developing the best team, understanding the level of risk that you are able to bear, working hard, networking, and caring about local people and their culture.

What advice would you give to investors hesitating over whether or not to invest in Indonesia at the present time?

I invite them to come to Indonesia and see all of the opportunities this country has to offer. Doing business here takes some extra patience and persistence, but the rewards can be very high. Indonesia has its share of problems to resolve, but they are not unlike those of so many other countries.

Would you like to send a final message to Oil & Gas Financial Journal’s readers?

I am confident about Star Energy’s chances of success in exploration and hope to contribute to the country’s level of production and reserves. As an Indonesian company, we can also keep close communication with the government and advise them about ways of making the investment climate more attractive for everyone.

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