Commited to Exploration

This special report has been produced by Elite Special Sections for distribution with OIL & GAS JOURNAL

Indonesia’s long and storied history in the petroleum business is well known – it was the birthplace of Shell, a former

world oil power and still a major force in the global trade of LNG that it helped pioneer in the 1960s and 1970s. The 21st century is a different story for Indonesia, which has swung from an exporter of energy on a global scale to an importer of oil, with the prospect of also importing LNG by 2018. Today, Indonesia is racing to find more oil and gas to meet its booming domestic energy needs.

The rapidly developing country is caught between declining output from mature fields and a sharp rise in domestic energy demand. BP’s Statistical Review of World Energy highlights Indonesia’s soaring appetite for energy. Primary consumption has jumped by almost 50% in just 10 years. This has taken Indonesia past Australia in terms of energy demand, but with 10 times the population of its

wealthy neighbour and as the fourth largest population in the world, energy demand in Indonesia is set to continue growing at a startling pace.

The Indonesian government is acutely aware of the challenges ahead and eager to encourage new investment in exploration. State-owned Pertamina is leading the charge with plans to drill 28 exploration wells in the next 12 months.

Domestic issues complicate the picture, including a rise in resource nationalism ahead of next year’s election. However, there is growing awareness of the economic imperative of more oil and gas discoveries, and the vital role that foreign petroleum companies must play if Indonesia is to be successful in meeting its energy needs. An already attractive fiscal regime has recently been improved, and new government spending on precompetitive data is helping to create opportunities onshore and offshore.

INDONESIA

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SKK Migas is building continued partnerships for sustainable development. Withthe objective to match target and planning of oil & gas production and to generate the maximum benefi ts and revenue for the nation and for the best welfare of the people.

SKK MIGAS Managing Oil and Gas for the Nation

National output has fallen from a peak of 1.7 million barrels of oil per day in 1991 to 918,000

barrels in 2012. Production dropped below the country’s own needs in 2004, and the imports have ballooned to almost 500,000 barrels a year.

Vice Minister Energy and Mineral Resources, Susilo Siswoutomo, says the

country’s top energy priority is to reverse the decline. “We would like to have more companies investing in exploration and production to help the country increase its production. Indonesia still has vast resources that need to be explored. Based on our latest estimates, we have 80 billion barrels of oil and many hundreds of trillions of gas, but it needs to be explored, it needs to be found.”

He acknowledges that Indonesia has challenges in creating exploration access and permitting, but says the country has an over-riding commitment to welcoming investors and treating them fairly. “We follow four principles. Number one is growing together - the investor will profit, but the people of Indonesia should also benefit. Number two is creating jobs. Number three is helping the poor. We are a developing country and we must provide jobs for the people and add to their income. The fourth principle is environmental protection. This is the framework in which we are working.”

Mr Siswoutomo says government is working on several fronts to boost

“Yes, we are still looking for oil because there is still a lot of oil to be found.”

DR. SUBROTO BIMASENA Chairman, Former Minister of Energy & Mineral Resources

Indonesia is determined to reverse a long-term decline in oil production by attracting explorers

New investors sought to boost oil production

investment, including new tax concessions and streamlining the regulatory processes. “The fiscal regime for petroleum exploration is already attractive, but we are improving that further with the exemption of import duties for oil and gas activities.”

The government has clearly signaled its intention to boost infrastructure to support petroleum development. The

lack of investment in pipelines and other energy infrastructure has been blamed in part on a generous fuel subsidy, which has depressed returns and discouraged privately funded development. In June of this year, the government announced

significant cuts to the subsidy, and has held firm despite large scale public protests.

Looking further ahead, the government is investing in more pre-competitive data to de-risk new exploration areas. About $US10 million was allocated in this year’s budget for 2D seismic studies. Parliament is debating a plan to establish a Petroleum Fund that would have the capacity to fund even larger surveys over the frontier eastern areas.

Hadi Purnomo, Secretary General of the Ministry of Energy & Mineral Resources, says the government is targeting a turnaround in national oil production to one million barrels of oil per day by 2014 and 2015. “One way to meet this level is by optimizing our fields like in Cepu and also by employing enhanced oil recovery (EOR) in some existing fields. We are also

encouraging our contractors to increase exploration, especially in east Indonesia.”

Indonesia’s largest petroleum producer, Chevron, is leading the development of EOR technology. Earlier this year, it began the trial of surfactant flooding at its Minas field, which has produced 4.5 billion barrels since 1954. If the surfactant pilot is successful, Chevron expects to double production from Minas to 140,000 bopd in the short term.

New fields are also being brought on stream, led by the ExxonMobil-operated Cepu field, the biggest discovery in the past decade. ExxonMobil has an aggressive drilling program to increase production from about 25,000 bopd to 165,000 bopd by the end of next year. Other new projects include the Ande Ande Lumut in the Natuna Sea. Australian-based AWE has expanded the scope of the development to a possible 35,000 bopd.

Former Minister of Energy and Mineral Resources Dr. Subroto, says he has no doubt Indonesia can increase production if it improves the investment climate, regulations, as well as cooperation and coordination between the various

stakeholders in the oil industry. “That is the first point that I want to

stress. Yes, we are still looking for oil because we believe that there is still a lot to be found. And while oil is declining, the gas production in this country is increasing.”

“We would like to have more companies investing in exploration .... to help the country increase its production”

MR. SUSILO SISWOUTOMO Vice Minister of Energy & Mineral Resources

T he shock decision last November reflected a growing mood of resource nationalism, with the

judges stating as they handed down their decision that Indonesia’s falling petroleum output showed the regulator was not acting on behalf of the people. The decision sent shockwaves through the Indonesian Parliament, but within 24 hours the government had filled the gap by creating a special task force to assume the responsibilities of BPMIGAS. Known as SKK Migas, the new regulatory body reports directly to Indonesia’s President.

The Secretary of SKK Migas, Gde Pradnyana, says Indonesia was mindful of the need to move quickly to reassure inves-tors in the country’s oil and gas industry. It’s important to emphasise that the oil and gas laws of Indonesia were not affected by the court’s decision. All existing contracts continue to be honored and in fact it is very much business as usual. “One of In-donesia’s biggest selling points to interna-tional investors is the sanctity of contracts in our country, which was demonstrated when the oil and gas laws were introduced

in 2001. That continues to be one of our strengths. Economic and political stability are also key competitive advantages.”

Mr Pradnyana says SKK Migas strived to achieve a balance between the needs of its many stakeholders. The government of course demands more production and more revenues. The people demand more shares, while industry investors of course ask for more stability, more incentives, and more profitability for them. “It is not always easy to create a balance between all of the various conflicting demands. But I believe that we are always available to talk and be reasonable, we are not rigid in our position. I believe we are willing to listen to many

other opinions. We certainly always try to balance the concerns being raised by our various stakeholders. We are here to support

the investors and to give the best benefits for our people.”

Mr Pradnyana says the strong track record of SKK Migas proves that Indonesia’s oil and gas industry has not been affected

affected by last year’s changeover of the industry regulator. “In 2012, the government signed 25 Production Sharing Contracts (PSC), boosting the number of contracts under the supervision of SKK Migas to 308 at the end of the year. Of this total, 75 are production PSCs, along with 179 exploration PSCs and 54 contracts for exploration and development of coal bed methane.”

He says the agency had also achieved substantial improvements in the speed of its decision making. “We have simplified bureaucracy to speed approval times. For

“One of Indonesia’s biggest selling points to international investors is the sanctity of contracts”

MR. GDE PRADNYANA, SKK MIGAS Secretary

Total has supported the creation of thousands of micro businesses in Indonesia through its corporate social responsibility programs. Many of these businesses have grown thanks to Total’s policy of local procurement of goods and services. Many others are finding their own customers by learning through Total’s CSR programs how to combine modern business practice with traditional skills.

Warsih, a local woman from East Kalimantan is one beneficiary of Total’s programs. This single mother of one,

Total: Empowering Local Business

Within 24 hours of the Constitutional Court ruling that regulator BPMIGAS was unconstitutional, it was back to business as usual

Business as usual for Indonesia’s petroleum regulator

example, we have reduced the Plan of Development approval from 47 days to 28 days. We have also improved coordination between central and local government institutions to accelerate the approval of exploration permits. This is reflected in the fact that a total of 96 exploration wells were drilled in 2012, up from 83 in the previous year.”

Mr Pradnyana says the biggest test of regulation effectiveness to Indonesia’s oil and gas sector is the commitment to spending in exploration and development, which continued to rise in 2012. “Last year, total investment climbed to US$16.1

billion, which was more than double the level of the previous year. This figure included an investment of US$1.4 billion in exploration, which shows there is a big commitment to finding new oil and gas reserves by local and international players.”

Pradnyana says SKK Migas still has challenges ahead. “Our biggest challenge is getting land access for petroleum explorers. As the population increases, there are more competing land uses such as forestry and agriculture. These are very big issues, especially in Java. It is much easier to obtain access for exploration offshore, which incidentally is where some of our biggest

opportunities lie for major discoveries.” He says regional governments are also increasing their demands, but his agency can help explorers educate local governments and communities about the nature of their activity and the need to achieve a balance. “Some companies are facing demands for investment in corporate social responsibility programs during the exploration stage and before there is any wealth to be shared. So we work with operators to educate local communities and regional governments are responsive to this and we find they

will stand behind you to convince local communities that exploration access needs to come first. If you are doing a seismic survey on a populated area, of course compensation would be requested for disturbances, disrupting access with heavy vehicles or any other interruptions to traffic and daily life.”

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“We are aiming to achieve a 400% reserves replacement ratio with an ambitious drilling program.”

MR. SYAMSU ALAM PERTAMINA EP President Director

produces Krupuk Amplang fish-flavored crackers and started her home industry six years ago with three employees and a turnover of US$50 per month. Today, after receiving assistance, her earnings have risen six fold and sales have extended outside of Warsih’s home province.

Total is also a big supporter of education in Indonesia. It funds scholarships that take top students to universities in Europe, as well as programs to help students in junior school prepare for higher education.

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T he President Director of Pertamina, Syamsu Alam, says the country must find new reserves to boost

production. “Our strategy is to be very aggressive in terms of exploration. We currently spend about 20% of our annual budget on exploration, and will be increasing our spend on exploration by US$300 million in 2013. Most of that will be spent on drilling and our program includes 28 exploration wells this year.”

Mr Alam says Pertamina’s exploration success rate is high, and he is confident it will continue to improve. “Last year we achieved a 200% reserves replacement ratio, and we are aiming to achieve 400% this year with an ambitious drilling program.”

Pertamina is the second largest petroleum producer in the country, accounting for about 17% of national production thanks to large mature fields on onshore Java and offshore gas fields supplying Bontang LNG. Pertamina is currently ranked behind Chevron, and ahead of Total and ConocoPhillips.

Pertamina is also the largest company in the downstream sector of the country, with eight refineries and plans to build additional capacity at Bontang.

Mr Alam says the oil industry in Indonesia has been around for more than 100 years and needs fresh thinking to improve its chances of exploration success. “One of the keys to success will be a change in the mindset from the old

plays into the new plays. Right now we are setting deeper targets and have tried to identify the most strategic path possible to boost discoveries and reserves. Last year we were quite successful, with an exploration success rate of 80%.”

Pertamina’s chief executive officer,

Ms Karen Agustiawan, has outlined a much larger role for the company in gas exploration in a bid to reduce the country’s dependence on oil.

In a recent speech to the Center for Strategic and International Studies, she highlighted the fact that it has an estimated

gas resource of 335 trillion cubic feet, equivalent to 59.6 billion barrels of oil. “We should increase our speed in transferring the energy mix towards gas. For that, we must first ensure that there is continuity in the sector, especially as exploration activities have been stagnant

in recent years and is not enough to replace the aging fields. I believe that to achieve our maximum potential, we should not be afraid to deal with foreign experts and cooperation with foreign parties that can help us increase our energy infrastructure and knowledge.”

Ms Agustiawan said the recent discoveries of gas in the Makassar Strait, the Masela block and East Natuna block showed promising potential, with East Natuna alone hosting an estimated 46 trillion cubic feet of gas.

She said development of new resources was best served through partnerships with foreign petroleum companies and the sharing of world-best practices and technologies.

“For example, Pertamina has led a consortium including ExxonMobil and Total since 2010 to secure a market for the gas from the East Natuna field. These partnerships provide a knock-on effect on local firms because they learn from the experiences of foreign counterparts, thus

helping other projects.”“The government should help us

find ways in which we can improve cooperation with foreign companies so that we can further develop this sector to replace oil as a source of sustainable energy in the long term.”

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Indonesia is investing heavily in a revival of its oil sector through its national oil company, Pertamina

MedcoEnergi: Exportable know-howNational oil company leads oil exploration effort

MedcoEnergi is already Indonesia’s largest home-grown petroleum producer with production of

oil and gas equivalent to about 50,000 barrels per day and this does not include the more than 20,000 barrels of oil per day produced under a service contract in Oman. Overall production will increase sharply from late 2014 when two major new projects, based on the remote Senoro gas in the Central Sulawesi province, are due to be commissioned.

The Senoro field, which has proved gas reserves of 2 TCF and can be up to 2.5 – 3 TCF, including potential upsides, is the basis of a new gas processing plant with capacity of up to 310 million cubic feet of gas per day and MedcoEnergi has a 30% stake in the gas processing plant. Supply contracts have already been finalized with an adjacent LNG plant now under construction and other domestic customers. The gas supply facilities and LNG plant are due to be commissioned in the third quarter of 2014.

MedcoEnergi President Director & CEO, Mr. Lukman Mahfoedz, says the domestic gas market is growing very quickly and presents suppliers with great opportunities. “Last year, the Indonesian Petroleum Association reported that its members supplied about 3.5 – 3.6 BCF per

day, compared to about 2.5 BCF only five years ago. This is a tremendous increase and in terms of the price, it is also fantastic compared with other parts of the world.”

The major off take from the Senoro gas plant will be Donggi-Senoro LNG (DSLNG), Indonesia’s fourth LNG project. DSLNG will come on-stream in late 2014, and will supply

customers in Japan and Korea with 2 million tons of LNG per annum. MedcoEnergi holds an interest of 11.1% in DSLNG, with Pertamina, Mitsubishi and Kogas.

Led by the Area 47 oil project in Libya, the company’s growing international asset base will have a greater impact on production over the next few years and the Phase 1 development of six fields with 301 MMBOE recoverable reserves is targeted to be completed in 2016. The remaining 10 fields will be appraised in 2013 - 2014, to

be followed with the Phase-2 development with another 287 MMBOE recoverable reserves (internal estimates). MedcoEnergi has a 25% interest in the project.

The Area 47 project is the result of a cor-porate strategy to diversify internationally, thereby creating new growth opportuni-ties and reducing risk. The company now

has seven assets spread across the Middle East in Oman, Yemen, North Africa and the US. In Oman, the company has operated a mature oil field, owned by PDO and Shell since 2006, and

has successfully increased production from 9,000 to 22,000 BOPD early this year.

In other energy related business, MedcoEnergi operates coal mining with a high-caloric coal production capacity of 600,000 ton per year. In power generation, MedcoEnergi operates a 200 MW gas fired plant and a 2x660MW coal fired plant. Additionally it develops two major geothermal projects that have a total capacity of 500 MW as well as an annual 50MW capacity of minihydro project.

“MedcoEnergi is on the cusp of transformational growth thanks to a number of major projects at an advanced stage of development”

MR. LUKMAN MAHFOEDZ MEDCOENERGI President Director & CEO

Setting the stage for growth thanks to major projects

Salamander Energy, both from the UK and Sweden’s Lundin Petroleum.

There is also a big Australian contingent of explorers and producers, including Santos, AWE and small caps Cue Energy, Nido Petroleum and Neon Energy.

Additionally, a number of Indonesia companies servicing the oil and gas sector are joining the exploration push, including Sugih Energy and IMECO. Sugih Energy began operations in 1990 as an oil field services company and listed on the Indonesia Stock Exchange about a

N iko Resources is one of the more aggressive new explorers, with a focus on high risk, high

reward opportunities in deep water. The Calgary-based independent is the largest deepwater acreage holder, with 21 PSCs and seven joint venture areas over a gross area of 28 million acres. In

2012, Niko brought the Ocean Monarch to Indonesia for a four-year campaign of up to 25 deepwater wells - the largest in Indonesia’s history.

Niko is a partner with ENI in the Makassar Strait., where the Italian major recently made its biggest discovery

in Indonesia, the Jangkrik Northeast gas field, with gas reserves of about 200 million barrels of oil equivalent. The field is being developed to produce 145 million cubic feet of gas per day for Bontang LNG.

ENI has been in the country since 2001 and recently signaled plans to maintain a

high exploration spend in Indone-sian waters, with a budget of US$400 million over the next four years. Another aggressive new independent is Singapore-based KrisEnergy. It has a strong focus on

Indonesia, which accounts for half of its 14 contract areas across southeast Asia. The company has recently made a series of gas discoveries in the Kutai PSC, which are being appraised for development.

Other active independents in Indonesia include UK-based Premier Oil and

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Total Set to Remain in Indonesia

The Mahakam Production Sharing Contract (PSC) expires in 2017 and speculation is rife about whether the Indonesian government will renew or bow to public calls for nationalization of petroleum assets.

Total’s director and general manager for Indonesia, Elisabeth Proust, says the Paris-based oil major has a important future in the country regardless of the government’s decision on Mahakam.

“For Mahakam, the challenge is not only the extension of the PSC

post 2017, but reversing the decrease in production. We have already produced more than 80% of reserves and rapid field decline is normal at this stage. We are very focused on this and, through our exploration in new areas, finding reserves that can replace Mahakam.”

Proust adds that Total is willing to work with a government partner beyond 2017. “Our most likely scenario is we will remain a partner in Mahakam, possibly as a part of a consortium with PERTAMINA and the regional authorities. We need to

perform a smooth transition over five critical years from 2018 to 2022 because there are still major commitments to deliver gas and these require substantial investment before 2017.”

ELISABETH PROUST, TOTAL ESP President Director & General Manager

Total continues to see a bright future in Indonesia. Total’s President Director and General Manager for Indonesia, Elisabeth Proust, says the Paris-based oil major has important future prospects in the country

Oil majors dominate the sector, but a group of independents is leading the new wave of exploration

Explorers active on a wide range of fronts

NuEnergy Muara Enim PSC Pilot Production

“We plan to acquire more blocks especially now that the government is making more room for local companies”

MR. ANDHIKA ANYNDYAGUNA SUGIH ENERGY President Director & CEO

decade ago. In 2012, Sugih changed its focus to exploration and development with the goal of becoming a significant domestic producer. The company acquired interests in two blocks in Sumatra - a 49% interest in the Lemang PSC and a 100% interest in Kalyani PSC - and was quickly rewarded with discoveries at its first two exploration wells in the Lemang block. The Akatara discovery has already been assessed as a gross prospective recoverable resource of almost 150 million barrels of oil.

Sugih has also announced plans to acquire SelatPanjang PSC, which has

recently begun production at 5 million standard cubic feet of gas and 300 barrels of oil per day.

Andhika Anyndyaguna, Chief executive officer of Sugih Energy, says Sugih plans to acquire more blocks in the near future “We plan to acquire more blocks especially now that the government is giving more room to local companies to take over blocks that are going to expire soon. We see those as opportunities as well.”

The growth of unconventional gas, including coal bed methane (CBM) and shale gas, is also contributing to a more diverse exploration industry in Indonesia.

Indonesia is estimated to have 453 TcF of CBM gas in place and is considered to have some of the world’s best undeveloped potential. The first CBM PSC was awarded in 2008 and BP was the first to commercialise Indonesia’s CBM reserves, with sales to Bontang LNG beginning in 2011. Total, ExxonMobil and Santos are also investing heavily in CBM exploration.

Shale gas exploration is also underway and earlier this year, Pertamina signed the first PSC for shale gas, in Sumbagut, North Sumatra. This was among 14 shale gas PSCs awarded to domestic and foreign investors via tender.

of wells will be drilled over the next couple of years. We need to move quickly to cap-ture that opportunity through these strate-gic alliances.”

Trust Corporation is another local company expanding its marine services. The company

has grown quickly from its inception only five years ago. It already has a fleet of 20 tug/barge sets, and recently launched an integrated marine services section to cater specifically to the oil and gas industry.

Chief executive officer, Mateus Lesmana, says the future of Indonesia’s petroleum industry is offshore. “There will be a lot of offshore drilling and exploration activity. The cabotage law is also encouraging local marine service companies with the capacity to participate in that sector. We are looking at opportunities for growth in the next two or three years, including the possibility of an IPO to give us the financial structure to fund our expansion.”

Trust Corp’s strategy is to lower costs through innovation and pass on the benefits to customers, thereby increasing market share. “Our mega jumbo barges are a good example. They can carry 30% to 40% more load than a normal barge, but can still be powered by a standard engine, which means

It recently started operating offshore in the West Madura oil field through a joint venture with KS Drilling. Mr Rudiono says the company intends to form more joint ventures with partners with the right

technologies and competencies. “We have the market and the local expertise and will be able to open up more offshore drilling operations.”Pertamina Drilling is also keen to ex-pand into services such a cementing and directional drilling to capture a larger share of drill-ing budgets both onshore and off-shore. “Hundreds

Under Regulation 48 introduced in 2005, Indonesian owned and flagged vessels have exclusive rights to operate in local waters, also known as cabotage. This includes vessels such as offshore drilling rigs and floating production storage and offtake vessels (FPSOs).

The oil and gas industry has originally granted an exemption until 2011, but this has been extended to 2015 because of the specialised and demanding needs of the industry.

Bill Sullivan, partner with Christian Teo Purwono & Partners, a local law firm specializing in the resources sector, says it is difficult to see Indonesian companies acquiring the capacity to meet the needs of the offshore oil industry. “It might well be the government extends the waiver again for the petroleum industry.”

But local shipping operators see cabotage as an opportunity. Many are seeking to form partnerships with foreign drilling services operators, who are permitted to take minority stakes in Indonesian vessels.

Mateus Lesmana, chief executive officer of Jakarta-based marine services company Trust Corporation, says his company will be ready by 2015 to meet all the needs of the oil and gas industry.

Shipping Industry Readies for Bigger Role in Oil and Gas

“Oil and gas activity has picked up in 2013 and there are many more projects on the horizon”

MR. R.P. SINGH ADVANCED OFFSHORE President Director

A shift towards offshore exploration boosts Indonesia’s oil and gas services sector

Services industry swings offshore to support explorers

A growing number of local companies are investing in offshore marine services, including

Pertamina Drilling, a unit of the state energy company. Pertamina Drilling is focused on supplying services to its parent, but works for other operators if it has available rigs. Pertamina Drilling director, Mr Faried Rudiono, says the company’s priority is to provide operational and safety excellence to all customers inside or outside Pertamina and establish a reputation as the drilling contractor of choice. The company operates almost entirely onshore, with a fleet of 39 rigs, but is moving into the offshore market by forming partnerships with specialists.

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Oil and gas exploration

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are clients are paying less. This is just one example of the positive impact our technical and engineering team has over naval design, load factors, fuel consumption and speed.”

Advanced Offshore Services is also investing in marine services for Indonesia’s oil and gas industry. Jakarta-based company provides diving services and Remote Operated Vehicles (ROVs), which are required for all work below depths of 200 metres in southeast Asia. President director R. P. Singh says offshore oil and gas activity has picked up in 2013 and there many more projects on the horizon, especially for Chevron and Total. He says ROVs and DP2 dive support vessels are in high demand. “We operate one world-class ROV with a Tether Management System, and have plans to buy two more of these vehicles by the end of the year. As for DP2 vessels there are only one or two available with the Indonesian flag.”

Mr Singh said he is seeking to partner with other companies to bring in more DP2 vessels. “They will need to convert to an Indonesona flag to operate here, but I don’t think that’s a real barrier for any

company that is looking at Indonesia’s potential over the long term. It’s the only country in Southeast Asia that is going to boom, ahead of Myanmar.”

Jakarta-based services company IMECO is also developing its offshore capabilities in support of the industry shift from onshore to offshore exploration. President Director, Mr Tanu Wijaya says marine services is a key growth area for the company. “If you look at the map, Indonesia is as big as the United States but maybe 70% is water, so there will be an increased need for better

infrastructure and sea transportation, and of course there is the government regulation on cabotage that will be key. Offshore is the place to grow in the future, particularly the deep water eastern area. When somebody makes a discovery of a giant field then they will need marine services by providing support to the onshore base and the vessels. Therefore, we are developing our marine division to have a wider range of services, by which to so that we are not only providing vessels but also shore base facilities.”

so big. Normal learning is not enough. We need to have fast track learning with students and young professionals not only doing routine jobs but also attending events at both IATMI and SPE will help to accelerate the development.”

He says there is also a concerted push to bring many Indonesian engineers back to their home country from places such as Dubai, which has historically offered better salaries and career opportunities. But local salaries have improved, and the country has no shortage of opportunities.

“Indonesia is a newly full democratic country. So, it is very open. Yes, there are some challenges, but the opportunities are also there in some of the deepwater exploration in the east part of Indonesia, in enhanced oil recovery both onshore

and offshore and do not forget the uncon-ventionals such as CBM and maybe shale gas. Shale gas is probably still too early, but it is a potential. It is a good country to invest in. In terms of the people, we have good universities locally, but of course,

we need to train.”Skill shortages also extend into

specialized areas of expertise such as diving, although industry participants say this is primarily due to a lack of training providers rather than potential trainees.

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ENGINEERING, PROJECT MANAGEMENT AND CONSULTANCY

Shaping the future

Multi-billion dollar investment in new projects has left Indonesia’s engineering industry struggling to keep up with demand

Skill shortages highlight growth in local petroleum sector

International firms in engineering, procurement, construction (EPC) and project management are prominent in

most Indonesian projects, but there is also a strong contingent of fast-growing local firms. President director of Jakarta-based engineer and construction contractor Tripatra, Joseph Pangalila, says “everyone is short of engineers because there are so many projects, onshore and off-shore.”The trend towards deep water areas is also increasing the complexity of projects and demand for skills. He says Tripatra has refocused on the Indonesian market

because there is more domestic demand than it could meet. “The last few years we started our inter-national market-ing and we have executed projects in Sharjah. But increased invest-ment on the upstream investment here, specifically in deep water areas, has led us to refocus on Indonesian projects. It

does not make sense to look for new markets when we are still short of engineers for domestic projects.” Mr Pangalila says the company’s five-year plan envisages the company will be four times its current size. “In Indonesia, there is sustainable growth in investment. Chevron, Exxon-Mobil and Total have been here for many years, and they remain in the market so that means some-thing. For Tripatra, we want to grow with the Indone-sian economy.” He says local firms have the advan-tage of a deeper understanding of

local people and culture, backed by the capability to deliver projects to interna-tional standards. “Working with us not only brings technical expertise but also local know-how, that is very important especially after the Suharto era. Local governments are becoming more power-ful and we have found that many inter-national companies are having difficul-ties entering the communities because they do not know the culture and they do not know how to approach them.”

He says CSR programs that create prosperity for local communities are vitally important, and can also help to create the supply of skills needed. “Our CSR programs are not only in health, but also education. We have trained 15,000 people in the last year. Most of the local people are farmers and we need to train them in construction. We have spent a lot of time training them in safety, trade skills, even as truck drivers. It is good for the community because it has a multiplier effect.”

Chairman of the Society of Indonesian Petroleum Engineers, Bambang Ismanto, says the shortage of local engineers has been compounded by a generational “crew change” that has seen many experienced engineers retire over the past few years. “Basically, the experienced people retired, and that’s why the gap between the experienced people and the graduates is

The high level of drilling activity in some parts of onshore Indonesia has created a business boom for Bormindo. The Jakarta-based dri-lling services contractor is enjoying its best year and plans to increase the number of rigs in its fleet from 11 to 16 by the end of the year.

President director, Charles Gobel, says demand is underpinned by Chevron Pacific Indonesia, which has been a customer since the 1980s. “Bormindo’s customer base is made up of prominent companies that are well established in Indonesia. They are increasing their activity, while new entrants who are coming in and exploring for new fields are finding it more difficult to invest.”

Gobel says drilling rigs have not changed significantly since the 1980s because of customer pre-ferences. “We need more rigs, es-pecially those that might no longer be considered economical in North America. There is an opportunity here for rig owners who team up with us in Indonesia.”

Bormindo’s Drilling Boom

Tunu Field, North Processing Unit (NPU)“Our five year plan is for the company to grow four times its current size”

MR. JOSEPH PANGALILA TRIPATRA ENGINEERS & CONSTRUCTORS President Director

“There will be a lot of offshore drilling and exploration activity.”

MR. MATEUS D. LESMANA TRUST CORPORATION Chairman & CEO

President director Advanced Offshore Services, R. P. Singh, says Indonesia wants to improve the skill base in the country’s oil and gas sector, but has not invested in training capacity. “We can train only 10 or 15 people every year, when really we need over 100 or 200 divers here.”

He says local industry insisted on the international standard certification for divers - the International Marine Con-tractors’ Association (IMCA) standard. “We need to spend the money to train Indonesian nationals because recent graduate engineers coming out do not want to spend up to $30,000 on this training because they have already spent all their money for their schooling and college. The government should provide the funds to train the Indonesian divers. In addition, oil companies must assist by funding Indonesian divers to train over-seas and qualify them as IMCA divers, which can only be done in Australia, Africa, UK, and France.”

Total is the only oil company so far in Indonesia to come up with the proposal to pay part of the training and train 12

divers per year. “We share the costs with Total to train these divers, but we need other oil companies to follow suit and train Indonesian per-sonnel. There should also be thought given to a diving training centre here in Indo-nesia, where an inter-national standard of diving qualification can be provided.”

Another home-grown company that is growing in the EPC sector is IMECO.The company was established in the 1970s and initially focused on the supply of high technology equipment and then later manufactured under the license of products such as wellheads and christmas trees. In 2007, it completed its first EPC project, a 40MW gas-fired power station in South Sumatra.

“IMECO now successfully man-ufactures its own brand of pumping units and has a contract to supply, maintain and op-erate 800 units for Chevron. It is cur-rently working on

establishing an international distri-bution network for its own brand of pumps, GIGATECH, with an initial focus on the South East Asian re-gion”, says IMECO president director, Mr. Tanu Wijaya.

Companies such as Sagatrade Murni have already proved that home-grown products and expertise can compete successfully in the global market. Sagatrade Murni has been manufacturing oilfield equipment at is Samarinda facility since 1987. Sagatrade products have run successfully in every major oil and gas producing region in the world, with customers including major oil companies and independents.

In fact, there is ample evidence the only constraint on the growth of the country’s oil and gas sector industry is a shortage

of skills and labor. Uncertainty about aspects of regulation has undoubtedly hindered some investment, but no-one argues with the desire of the government to promote energy development and its willingness to find solutions.

The government has the difficult task in the world’s fourth most populous country of balancing the needs of petroleum operators with many local stakeholders, who are eager to exercise their power in the newly democratic Indonesia.

Indonesia also has the enviable problem of sky-rocketing domestic energy demand, which continually shifts the goal posts of energy self-sufficiency and makes the country an easy target for its critics.

The rapid growth of Indonesia’s LNG industry is proof of the overwhelmingly positive outlook for the country’s petroleum sector. First cab off the rank is Donggi-Senora LNG, which will become Indonesia’s fourth LNG project when it

comes on stream in 2015 at a rate of 2.1 million tonnes of LNG per annum.

Inpex and Shell hope to develop the country’s fifth LNG project at Abadi, using Shell’s innovative floating LNG technology. Existing projects are also expanding. BP is working towards a final investment decision in 2014 on the addition of a third train at Tangguh LNG, expanding capacity to 11.4 million tonnes per annum. And at Bontang LNG, new gas discoveries are being made to keep the giant project supplied with feedstock for many more years. The future is bright across the country’s

petroleum sector for two simple reasons. Indonesia’s 240 million people have a higher standard of living within their sights, and no-one will be able to slow their demands for the energy that is necessary to fulfil their aspirations. Secondly, the country is rich with untapped opportunities. In conventional oil and gas, the country has vast areas of unexplored but highly prospective frontiers, and almost limitless opportunities in coal bed methane, geothermal energy and shale gas. It is easy to imagine the story of Indonesia’s petroleum sector is still at the beginning.

Crude oil refinery

Increased gas production counters the decline in oil and gas

Rising standard of living drives a bright energy future

Global Presence, Local ExpertiseAMEC Berca Indonesia is active in the local market and is a high value engineering center for AMEC’s global business across 40 countries. Vice President Director of AMEC Berca, Dr. Willy Wiyatno, says the firm’s high level of local expertise makes it a key office in the global network.

“Collaboration across our various centers of expertise is the way we do business because we can assign our best people to deliver the best outcomes for the client, no matter where the project is located.”

AMEC Berca professionals in Indonesia have worked on projects for oil majors in a number of countries, including Russia, the Philippines, Qatar, and United Kingdom.

A world class oil and gas support

service companyWith over thirty three years of solid

experience, PT Bormindo Nusantara is

poised to expand and diversify within

the growing industry and region.

Our proven track record of safe, reliable

and timely performance assure that our

clients continue to receive the total quality

service they have come to expect.

Our long term relationships with industry

leaders has established our reputation as

one of the foremost drilling and workover

service companies in Indonesia.

www.bormindo.com

www.elitespecialsections.com

Photos Courtesy of:SKK Migas, Medco Energi, Tripatra Engineering & Construction, Total E&P Indonésie, Oscar Segura Alonso Special Thanks to:Dr. Subroto, Chairman Bimasena and Former Minister of Energy; Hadi Purnomo, Secretary General of the Indonesian Energy Council; Widhyawan Prawiraatmaddja, Deputy Chairman for Commercial Management at SKK Migas; Lukman Mahfoedz, Chairman of the Indonesian Petroleum Association; Bambang Ismanto, Chairman of the Society of Indonesian Petroleum Engineers; Alfian, Communications Department SKK Migas; Imron Gazali, Head of Corporate Secretary at Medco Energy; Ekhsan Nulhakim, Head of Corporate Communication at Medco Energi; Amahl S. Azwar, Journalist at The Jakarta Post