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Interview

with Tor Fjaeran, President Director, Statoil Indonesia

20.11.2007 / Energyboardroom

After spending most of your career in the cold and harsh weather conditions of the North Sea, you have just recently been appointed to head the new office in Indonesia, a lush tropical archipelago. As a marine geologist, how excited are you about discovering and working in a completely different environment?

My main interest in Indonesia is due to all of the interesting opportunities in this country for oil and gas. In an industry which is globalizing more and more by the day, we can actually say that the challenges a company faces offshore in the deepwater of Indonesia are not so different from those of the North Sea. There is also the fact that there are many lessons learned in Indonesia from which we could benefit, since this is a country which has been producing oil and gas for over 100 years, whereas my country Norway has been in the business for just under 40 years.

In addition, Indonesia has the fourth highest population and the world, and has also become one the largest in terms of greenhouse gas emissions. This is particularly interesting for me, because over the last three years with StatoilHydro this is one of the main issues I have been working with. With regards to the environment I believe that there are opportunities for StatoilHydro in Indonesia, not only from the country’s point of view but also as a company that can do business combined with mitigating climate change.

What do you think made you the ideal candidate for this challenging new position: your love for the ocean, experience with environmental issues, background in exploration…?

I have a long background in the sector, going back to 1980 when my involvement with the Norwegian petroleum industry began. I spent 11 years as exploration manager for the Norwegian Offshore division. During the nineties, I was also responsible for E&P for the Middle East and Asia, and lived some time in Africa. Over the last 10 to 15 years I have been very much involved in the political and societal context of the O&G business, for example in Norway’s Arctic Policy Development. I like to work on the areas where the industry and business meet society, and there is definitely a lot of that here in Indonesia. I enjoy being here because it is a new place with a completely different setting, yet at the same time it feels familiar because you meet the same companies and people with similar backgrounds as in any other country’s oil and gas industry.

The geographic and meteorological differences between Norway and Indonesia are evident, but what would you say is one thing that these two distant countries share in terms of their geology with regards to oil and gas?

Indonesia’s history in oil and gas has mainly been in onshore and shallow water exploration and production. There is a big movement now in the country towards deep water exploration, which is why we believe that StatoilHydro’s long and successful history in offshore operations can contribute to the further development of Indonesia’s O&G industry. For the moment the company is in Indonesia active only in exploration, and eventually we hope to move on to development and production as well, with a focus on offshore areas.

While some IOCs point at the regulatory framework in Indonesia as a matter of concern, StatoilHydro states that the upstream investment climate meets its criteria. What are the criteria, and how do they relate to the opportunities for E&P in Indonesia?

The main issue for any investor to consider in this industry is the potential of making a large oil and/or gas discoveries; that is ultimately what determines a company’s decision to get involved in a certain country. This is fortunately the case today in Indonesia, thanks to the opening of big opportunities in deep water areas which are under-explored to date. This strategic assessment is the main starting point for StatoilHydro. Besides that, we look into the fiscal and legal terms offered in the country, and we consider that in this respect Indonesia also meets our criteria for investment. International companies have been operating in this country for many years under the PSC system, and they have been able to do good business most of the time so we see no reason why this would change in the future.

Of course, as in every country there are certain issues which a company would like to be different, but you have to be able to see things from both the company and the government’s perspectives. I come from Norway, which is a country that is very adamant in maintaining as much of the oil and gas profits as possible in the country, so it is not so difficult to understand these dynamics. StatoilHydro is Norway’s National Oil Company (NOC), still 62,5% state-owned, and as such finds itself at a good starting point to build relations in Indonesia.

Statoil has taken its time before deciding to establish itself in Indonesia, a country which already hosts most of the world’s top oil companies. What reasons made this the ideal moment for StatoilHydro to finally go forward with investments in Indonesia’s O&G sector?

StatoilHydro has had Indonesia on the radar for a long time, but previously we had actually concluded that it was too late because the most prospective areas had already been awarded to other companies. We considered that the company would have only managed to pick up small pieces, which were onshore or in shallow delta areas. This all changed when the government announced the opening up of new deep offshore blocks for E&P. This meant that our company could have access to immature basins with potential for large discoveries in deep water, where our expertise lies.

StatoilHydro signed an MoU with state-owned Pertamina in September 2006 allowing for potentially wide cooperation, primarily in deepwater. Ari Soemarno told us that for Pertamina such an agreement can benefit them in terms of acquiring technology and expertise in offshore operations. So what does it represent for StatoilHydro?

Pertamina is the NOC of Indonesia, just as StatoilHydro is the NOC of Norway. Pertamina has an extensive knowledge of Indonesia’s subsurface, including offshore areas. Pertamina also knows the business climate, has experience operating in the country and has close relations with the authorities. All of these aspects are of great benefit to a company like StatoilHydro which is a new player in Indonesia. In addition, for a partially state-owned company like us it just makes sense to cooperate with other NOCs because we can better understand each others’ issues. Partnering with Pertamina in the Karama PSC will create a lot of opportunities for Pertamina to learn and develop expertise and competence in the deepwater area. Nonetheless, StatoilHydro will not limit its possibilities of partnering to onlyPertamina, as can already be seen by our cooperation with ConocoPhillips in the Kuma PSC.

During our meeting Ari Soemarno also told us that Pertamina was in discussions with Petrobras about potential deep sea cooperation. Is a possible rapprochement between these two companies of concern to StatoilHydro’s ambitions in Indonesia, or is there room for everyone?

The answer to that question can be found by simply looking at what StatoilHydro itself does in Norway. An NOC in its home market has the obligation to select the companies that will give the most value back to the country, as in any business relationship. So it is only natural that Pertamina is looking into other options in order to be able to compare and choose what is best for them. Of course, we hope and believe that for deep water and other possibilities in Indonesia our company will be recognized as the best candidate. So far there is one PSC where StatoilHydro is working with Pertamina, but we are open to growing further in the future as opportunities come up. Competition is normal in any business, it keeps you alert and makes sure that the best effort is made in order to offer the customer/partner something interesting.

Pertamina also requires enhanced oil recovery technology in order to maintain production in its many aging fields. Is this also an area where StatoilHydro can cooperate with them?

First I should note that there are three distinct areas of interest for StatoilHydro in Indonesia. The first, as already mentioned, is related to exploration and production in deep water. The second involves moving further down the gas value chain, an area in which StatoilHydro has a long and wide experience being operator, producing, transporting and selling gas products. Although nothing concrete has been decided yet in this regard, we hope that our competence in gas will allow us to get into this business in Indonesia.

The third area that interests us in Indonesia is the creation of business opportunities arising as a result of the climate change phenomenon. Our idea is to combine the need for reduced carbon emissions with the E&P business through carbon capture and storage (CCS) This might in some instances also include use of CO2 for EOR.. StatoilHydro and Pertamina have already held meetings in order to discuss this area. As I mentioned, Indonesia is a big producer of greenhouse gas emissions, and there are many simple initiatives to begin with which could help the country improve its environment while contributing to energy production. For example, Indonesia has large amounts of gas flaring which could be turned into a means of meeting growing demand for gas in the domestic market. In addition, LNG and ammonium plants in the country are producing carbon emissions that can be captured, stored, and potentially used for EOR. The question marks are still numerous surrounding this technology, but our company believes that towards the future linking climate change to E&P can be a business opportunity.

StatoilHydro is interested in further developing its LNG capabilities, based on its experience in the gas value chain, and Indonesia is a pioneer and big player in this sector on a global scale. How can StatoilHydro’s presence in the country contribute to the development of cooperation in this promising field?

Indonesia clearly has a long and successful history in LNG development, which is why Indonesian engineers from PT Barak are helping in starting up our LNG facilities in northern Norway. StatoilHydro highly values this country’s expertise in the LNG field and, despite the difference in technology imposed, this is an area where our cooperation can grow. Our possibilities of doing business in this sector in the country will therefore depend on the access to gas and on the government’s plans for allocating gas for local power production in order to reduce reliance on imported oil. The outcome of this will be important for our company and other industrial players in gas.

How prospective are the two exploration blocks StatoilHydro has interests in, Kuma and Karama, and to what extent is the company’s future in Indonesia tied to their success? Are new acquisitions on your radar?

The exploration licenses in Kuma and Karama have been very important to StatoilHydro because they allowed us to finally establish ourselves as a player in Indonesia’s O&G sector. We consider these offshore blocks to be prospective for large discoveries, but as of yet they are only in the exploration phase and it will be years before potential production begins. Seismic acquisition is set to begin in early 2008, after which we will determine where to start drilling. Rig availability for deep water offshore is tight, with production areas in several parts of the world competing for equipment, but StatoilHydro is getting together with other companies operating in the same area in order to acquire a drilling rig together.

Regarding new blocks, StatoilHydro is certainly looking into the deep water opportunities to be tendered in upcoming bidding rounds, but I can give no details about how we could potentially participate for the time being.

Norway’s local supplier base for O&G is vast and sophisticated, how do you find Indonesia in terms of technical and human resources?

Technology is available, as most of the major global contractors are represented in Indonesia. In terms of procurement, we have to experience it before I can really give an opinion, but I presume that it will not be a problem for us since it is an established system under which international companies have been doing business for a very long time. This is by no means a country new to the O&G sector, so the suppliers and structures are already in place. The main challenge for StatoilHydro is adapting to a new environment, but this is the case for any company entering a new country. Other big issues currently, but that affect the industry on a global scale, are the availability of equipments for ultra-deep drilling and of technical manpower. We have found a competent base of petroleum professionals here in Indonesia and are beginning to hire, though it seems that many are moving to the Middle East and other better-paying countries.

With most of StatoilHydro’s production growth coming from outside of Norway – from places like Angola, Algeria, Azerbaijan, Venezuela and the UK – is Indonesia considered a country that can potentially become one of the biggest contributors to the company’s assets?

The backbone of the company’s production is the Norwegian Continental Shelf , and that will be the case for many years. Our challenge in Norway is to try to maintain the present production level for as long as possible. StatoilHydro’s growth will have to come from outside of Norway, particularly from more difficult areas because the easy oil in the world is already taken. Azerbaijan looks promising in oil and gas, North Africa will become very important in the gas context while Angola, Venezuela and Canada will be key oil producers. Our strong position in deepwater Gulf of Mexico will be important for future production.

There are also some other countries which we have identified as having potential for large discoveries, which will be coming up over the next several years. Within this group, Indonesia is definitely well placed with a very high potential for a big discovery in deep water areas, although as always there is a risk that this will not be the case. StatoilHydro moves into countries where it is possible to build substantial business, through both organic and external growth. A combination of business in E&P, gas value chain, and CCS can put Indonesia on our map of main areas of interest, although it will take time to determine just how high up in the ranking it can go.

What final message would you like to send OGFJ’s readers about StatoilHydro’s ambitions for its business in Indonesia as makes way in this prospective market?

StatoilHydro is here to become a long-term player, and will build our presence in Indonesia based on our competences developed in our successful offshore operations in Norway.

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