ConocoPhillips in IndonesiaDecember 1, 2017
Bijan Agarwal, president and general manager of ConocoPhillips Indonesia, talks to TOGY about actions that the company is taking to support increased production and a recently inked gas sale agreement with PGN. ConocoPhillips has been present in Indonesia’s hydrocarbons market for the past 45 years.
ConocoPhillips Kalimantan carries out E&P activities in three onshore blocks: Corridor Block and South Jambi Block in South Sumatra, and Kualakurun Block in Central Kalimantan. The company is also involved in the transportation of natural gas via pipelines to Singapore. While the fluctuating price of oil has caused uncertainty in the market, ConocoPhillips continues to view its assets in Indonesia’s hydrocarbons market as a valuable component of the company’s portfolio.
• On stability and certainty: “Indonesia is like any other place. As oil prices have plummeted, companies are being much more careful and cautious in their investment strategies. To that extent, we must ensure that whatever investment opportunities are put forward, companies know that what they sign up for is what they are going to get. There is a component of stability, a component of certainty and also a component of sanctity. All of those are going to be very important in making sure that investors continue to be attracted to Indonesia.”
• On seismic acquisition: “We recently completed the seismic campaign in Kualakurun which is our PSC in Central Kalimantan. We are in the process of analysing and interpreting the data gathered during the 2D seismic campaign. By the middle of next year, we hope to have the results and be in the process of assessing next steps.”
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How is ConocoPhillips supporting the government’s plans related to energy efficiency and increased production? How is ConocoPhillips helping to maintain the current levels of production in Indonesia?
The company is very committed to the Indonesian government’s goals. Production has been constrained by demand rather than by the actual supply. We are putting projects into place. ConocoPhillips Grissik recently completed the Sumpal Compression Project under budget, ahead of schedule and in a safe manner. This will help us maintain productivity. We spud the Sumpal-8, part of a dedicated contract, in the first week of November 2017 and are on schedule to bring the well on stream in 2019. This will help to supply gas to maintain national production. We will also be drilling additional wells in Suban.
These activities will all help to maintain our current production levels. Additionally, we are in the construction phase of the Suban Compression Project that is scheduled to be completed around mid-2019.
These projects are all in support of keeping production up and being able to deliver gas domestically, which is primarily where our gas goes. We do a little internationally, but most of it is domestic. It is used in other industries in Western Java, Batam and Central and South Sumatra.
We have been active in Indonesia’s hydrocarbons market for more than 45 years, and we wish to be here for another 45 years. Part of our investment strategy is going to depend on the gross-split scheme and tax regulations that come with that. We are constantly looking for ways to make sure that we can meet the demands of the domestic market.
What can you tell me about your Gas Sales Agreement with PGN and the Sumpal Compression Project you recently completed?
We signed a Gas Sales Agreement with PGN recently; we are constantly looking for ways to distribute gas produced from the Corridor Block Production Sharing Contract (PSC), so that it is not all going to one place. We want to ensure that the buyers get what they need. We build flexibility into our plans so that we can supply local domestic needs and ensure that other industries in need of gas have it available
The Sumpal Compression Project was a separate project that we began in 2015; we just put it into service in April 2017. The Minister of Energy attended the project inauguration. We are very proud of this project. It was completed under budget and ahead of schedule in a very safe manner.
We are looking to continue this success with the Suban Compression Project and with the wells that we are drilling. That is what we are counting on to set us up for success moving forward and to help us compete and be a part of the Indonesian gas industry.
Is ConocoPhillips actively involved in any exploration activities in Indonesia?
Yes, we recently completed a seismic campaign in Kualakurun which is our PSC in Central Kalimantan. We are in the process of analysing and interpreting the data gathered during the 2D seismic campaign. By the middle of next year, we hope to have the results and be in the process of assessing next steps.
ConocoPhillips sold some assets to Medco. What is the company’s strategy behind this decision? Are you trying to divest from the region or are you planning to reinvest what you are getting from those sales into assets that are more profitable for you?
As a corporation, we are constantly looking at our portfolio and rationalising the portfolio. We sold the South Natuna Sea Block B to Medco in November of 2016. We felt that the asset would potentially have more value to another operator than it had to us. That is a part of our normal business process. We want to rationally look at our portfolio to ensure that we are focusing on our core areas. Medco saw great value in it, and we are happy that we were able to conclude that transaction.
What are you looking for in terms of investment or activities in Indonesia?
One area of focus is exploration in Kualakurun; we are waiting to see how it plays out. As I previously mentioned, we just finished collecting 2D seismic on a 740 kilometre area, and we are currently processing and interpreting the data.
We are also drilling three wells: two in Suban and one in Sumpal. Then there is the big Suban Compression Project. We have a lot of activity and investment in the next few years here in Indonesia. We are constantly looking for other opportunities of what else is out there that might be able to compete globally for us to add to the portfolio.
Can you comment on how much you are planning to invest in the coming years?
Beyond the three wells and the compression project, it will depend on what we see in Kualakurun and how these projects and others that we identify will be able to compete globally. We are still operating in a challenging environment. The oil price may be at USD 58 per barrel today, but it could be down to USD 40 next month. The only thing that we know is that it is going to be volatile for the foreseeable future.
We are still focused on the corporate strategy, which is to get a return for the shareholders. Capital is being managed prudently, so we have to come up with projects that will compete in our global portfolio.
What is the place that Indonesia occupies in ConocoPhillips’s global strategy?
We have been here for more than 45 years. I can tell you that Indonesia is very important to our corporation for what it adds to the bottom line. We have had a great relationship since we entered the country, and we are looking to continue that. We want to be here another 45 years.
Indonesia is like any other place. As oil prices have plummeted, companies are being much more careful and cautious in their investment strategies. To that extent, we must ensure that whatever investment opportunities are put forward, companies know that what they sign up for is what they are going to get.
There is a component of stability, a component of certainty and also a component of sanctity. All of those are going to be very important in making sure that investors continue to be attracted to Indonesia. There are vast resources here in Indonesia. However, like any other international company, or even a national company that plays outside of Indonesia, companies all have global portfolios with a limited budget. They have to compete.
The gross split PSC scheme was amended recently. Do you perceive these changes to be positive?
There clearly have been some improvements on Regulation 8, created back in January, compared to Regulation 52 issued in August, 2017. I credit the ministry for listening and hearing the input provided by the IPA [Indonesian Petroleum Association] and other players. The IPA along with the World Bank and Wood Mackenzie have played a large role in providing feedback.
We are pleased to see the steps that have been made. However, there are still some uncertainties and components that are unclear.
Again, part of what any company needs is to know that there is stability – that what you sign up for is what you are going to end up getting. That is very much the intent of the gross split PSC. They want to try to take out that uncertainty.
I think there are still some components in there that can be clarified. The biggest component, what we hope to see in the coming weeks, is the tax package that comes with the gross split. Right now, we do not know. We will need to see that as well as the ministerial regulation becoming a governmental regulation.
Again, that will give operators the certainty that these policies are firmly in place and that whatever investment they make is not going to change part way through a three-to-five-year development plan.
What challenges is ConocoPhillips facing in Indonesia today? And what are the opportunities that you see in Indonesia?
There is the uncertainty factor, the regulatory factor, and the time that it takes to get permits and such. Hopefully, these will be addressed through some of the efforts that the ministry is making right now.
Aside from that, our operations are very much spread out. We are onshore, but we do have logistical issues. That is one of the things that we are pleased to see being addressed in the changes from Regulation 52, the latest amendment to Regulation 8 of the gross split scheme. Most of the previous regulation was directed at the offshore; there was a lack of recognition for the complexity of onshore operations. That absence has been addressed to a certain extent in Regulation 52. The gas price was obviously a big thing.
There are challenges associated with resources and being able to compete and develop. Opportunities are going to be competitive in the global portfolio. There are resources here. We will see what comes out of Kualakurun for us in terms of that opportunity.
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