part two: Richard Lorentz, Director Business Development, KrisEnergy, Singapore,
In the second part of this two-part interview, Richard Lorentz, the Director of Business Development of KrisEnergy gives an overview of the upstream hydrocarbon market of South East Asia, and conveys the company’s strategic blueprint designed to capitalize on regional growth trends that will ultimately facilitate KrisEnergy’s ambition to become the local E&P heavyweight of Asia.
What would you say has driven investor appetite in the Southeast Asian region?
Looking at a map of the region, you can see that it covers a huge area the size of America, and until relatively recently, there was limited gas infrastructure. In the early days, if you found gas it had to be either huge on an LNG scale, or it had to be located right next to a significant consumer such as a fertiliser plant, otherwise exploiting it would not have been commercially feasible. Years ago when I was exploring in South Sumatra, finding gas was almost worse than drilling a dry hole because you could not relinquish it favourably nor could you monetise it.
We were responsible for finding a lot of gas in South Sumatra that ultimately ended up being the Corridor block gas project that sold, and still sells, gas into Central Sumatra and into Singapore. To some extent, that kicked off the Trans-ASEAN pipeline idea. Today, there are gas pipelines crisscrossing the region that has opened up a whole range of opportunities for new developments.
Another point to consider was the flight from Southeast Asia to West Africa. Oil companies tend to act like lemmings, pursuing the hottest deals across the world; from West Africa for a while to Brazil, and now East Africa. In the 1990s and early 2000s, it was generally perceived that there were no big-hit targets left in Southeast Asia. Of course, this couldn’t be further from the truth because monster discoveries like the Exxon discoveries onshore, Java and the Tangguh gas field in east Indonesia have been made. Hence, there was a vacancy left in the region and when we set up Pearl Energy, we were among the first start-up exploration and production companies to be established in Southeast Asia. Fast forward to today, we are in fact drilling a couple wells very soon which demonstrate great potential.
In terms of portfolio expansion, where is KrisEnergy looking to invest? Will you be expanding into new geographies or will you continue to focus on existing ones?
We are certainly looking at expanding. For instance, we recently put in a bid for a property in Malaysia and we soon expect to place bids for a property in offshore Bangladesh. We are also currently working on four properties in Indonesia and are in discussions for another in Vietnam. All these projects are generated in-house by our technical teams and are organically developed.
In parallel with that, we are also always on the lookout for potential acquisitions. However, I must say that competitive tendering is not something we often pursue because we tend to out-smart ourselves and we are not willing to leave money on the table. There are three large packages currently up for sale in Asia; one package of assets in China and Malaysia, gas assets in Thailand and Indonesia and another package in Vietnam. It is rumoured that one of the packages has 107 companies registered for the data room, that kind of competition means that someone is surely going to leave a lot of money on the table. We do not need to do that. Instead, we can be proactive and develop our own prospects and growth strategy.
On that topic, one of the nice things about Singapore is that it hosts a number of internationally recognised business associations and events, such as the South East Asia Petroleum Exploration Society (SEAPEX), which provides for a fantastic networking environment at a senior level. That, coupled with Singapore’s strategic location, means that almost every opportunity passes through Singapore, in one form or another. When decision makers travel to London, for example, they often transit through Singapore and we get to meet with them. In fact, we always joke about how good deals never travel far and they never go over water.
How does KrisEnergy intend to increase its average production levels, which in 2012 amounted to under 3,400 boepd in 2012?
Broadly speaking, our portfolio contains a good balance of assets across the exploration and production lifecycle. Over the last three and a half years, we have participated in about 27 exploration projects and have made 18 discoveries. Of those discoveries, we are developing six with the first one coming on stream in early 2015 followed by another every six to nine months after that. Those six developments constitute a diverse mix of oil and gas production; two located in Thailand, one in Cambodia and three in Indonesia. Right behind that, is another group of discoveries that are still in the appraisal stage. In addition to this, we also have a rich inventory of prospective exploration wells that we are constantly working to assess to get to the exploration drilling stage.
This diversity of assets across our E&P lifecycle demonstrates how we like to penetrate the entire value chain. Moreover, they illustrate the fact that all of our blocks, in whatever phase they are in, have exploration potential. Put together, our multi-target blocks form a good balance between high risk/high impact and low risk/low reward exploration prospects. In increasing the likelihood of success, we always try to be as ruthless as possible when it comes down to our technical assessment over a contract area. As mentioned, we have 16 properties now, but we have turned down over 200 in the past.
Southeast Asia deep waters represent great potential with over 2.5 billion boe in deepwater discovered resources without commercial development plans. Is this an area KrisEnergy is looking to tap into and does it possess the capacity to develop and operate these more challenging environments?
Every company that calls itself an oil company has at least some people that have worked in such environments. Our Vice President Drilling has a tremendous amount of deepwater experience given his almost three-decade long tenure with ConocoPhilips. That said, we do possess the expertise to get into deeper waters but as you get into those environments, the projects become increasingly expensive. This is not to say that we will never take on such projects, because we probably will. In fact, we have two blocks in relatively deep waters right now, one of which we are likely to begin drilling in 2014, the Tanjung Aru PSC in offshore East Kalimantan.
At the end of the day, we measure our success through production increases, cash flow increases and reserves increases. Deepwater projects would only address the reserves factor, but it will not do much for the other two over the short term. We like to get things done quickly and effectively and therefore do not have the patience for such projects.
Given the said importance of managerial expertise and technical talent that makes up KrisEnergy and the shortage of talent in the industry, how do you retain your staff in such a competitive market?
In short, we all love what we do and we have fun doing it. Since we first started hiring people in Pearl Energy 10 years ago, up until today at KrisEnergy, we are very proud to say we have only seen two people leave after being poached by the competition. I remember that one of them was in fact a driller that was offered a fourfold increase in his salary; I personally encouraged him to take the opportunity.
One reason our people like to stay with us is that we empower them and let them run the show. The way I see it, I am just a cheerleader. We enable and encourage our employees to make their own recommendations and decisions and we hire very fertile minds. Even though we have a number of vice presidents in the company, we do not have a steep hierarchy. The younger geologists and geophysicists in the company are encouraged to communicate their ideas and think outside the box. It is amazing how people respond positively when you hold them accountable for what they do. By contrast, when you work at the larger companies, you sort of sit at the lower end of things and never really get to see, or be a part of the decision-making process. These things make a really big difference to people and this is something we provide at KrisEnergy. You can see this once you take a walk in our offices; the three founders sit together in one big open room and all of our people have total access to us at all times. We do not like to take ourselves too seriously.
With the increasing importance of contributing to the development of host countries and their communities, what is KrisEnergy’s approach to CSR?
At KrisEnergy, we try to work closely with the local governments, authorities and communities to find out what the essential needs are in the local area and develop sustainable and value adding projects. We will avoid doing anything that is not sustainable going forward to that local community. We expect to put a project together that will last long after we are gone instead of simply building roads and schools to make inroads into the country, as some are still known to do.
As Pearl Energy, one thing we did was to drill numerous water wells in South Sumatra that are pumped using locally available equipment, ensuring they can source replacement parts with ease. In addition to this, we had a number of agricultural programs where we took seeds and plants, along with experts who would educate the local communities how to farm. Similarly, in Indonesia we have also donated millions of seedling fish to local communities. I believe such projects capture the long-term orientated focus of our social projects that go far beyond building schools or roads which often fall apart once we are gone.
On the other hand, in terms of production, we also look to market the extracted oil and gas to the host nations so that they can capture greater value. For instance, our production in Bangladesh is sold domestically (assuming the deal goes through), as is the case with the two gas projects we have underway in Indonesia. Similarly, in Thailand, the gas portion of our production is domestically consumed while the oil output is mostly marketed to Hawaii.
With your second exploration and production oil and gas company listing under the belt, what legacy would you leave behind?
We intend to shape KrisEnergy as Singapore Inc.’s oil and gas E&P arm. We aspire to do in Asia what Tullow Oil is doing in Africa.
We want people to view KrisEnergy as a company that is rigorous in its upfront technical work, which is why we have a superior exploration success rate. We are dynamic, we can move and respond quickly to get deals done. We want to build a sustainable oil company.