New energy players rising in Asia By Donald Greenlees International Herald Tribune
TUESDAY, DECEMBER 6, 2005 JAKARTA When Supramu Santosa started in the oil and gas business in Indonesia in 1968, it was dominated by a state-owned company and foreign multinationals. The only job he could get was as a "roughneck," a menial laborer on oil rigs, carrying bags of cement for a meager wage. Three decades later, he owned an oil and gas company. Not many people have heard of Star Energy Group, the company Santosa created in partnership with an Indonesian financial investor in 2003. But its existence is the fruit of an extraordinary personal rise and a sign of changing times in the oil and gas industry in Indonesia and elsewhere in resource-rich Southeast Asia. As multinational energy companies have cut back on exploration in Indonesia because of concerns over the investment environment in recent years, a new breed of energy player has quietly emerged and prospered. These locally owned exploration and production companies number only a handful. They are too small to take on the global oil and gas firms. And they alone cannot turn around the sharp decline in production in Indonesia, the only member of the Organization of Petroleum Exporting Countries in the Asia Pacific region. But they are gradually changing the face of an industry in Indonesia in which private investment has been almost entirely dependent on big U.S. and European energy companies. "In the past people didn't see the oil and gas business in Indonesia as a local business," said Santosa, Star's chief executive. "It was a business for the big boys. We are now seeing more local companies becoming serious players." By comparison with other regions, the oil and gas industry in Southeast Asia still has very few independent local operators. There are 28 such companies active in Indonesia, Malaysia and Thailand, compared to 160 in North America and more than 100 in the North Sea, according to the U.S. Geological Survey. Moreover, most of the Asian companies are very young. In Indonesia, the most energy-rich country of the region, only three independent operators attract much interest - Medco Energi, Energi Mega Persada and Star. "It's something that is pretty new," said Peter Cockroft, a veteran oil industry executive and senior research fellow at the Institute of Southeast Asian Studies in Singapore. "You have seen a bit of this in the last five years or so - independent companies with an Asian focus emerging. In Indonesia, being a place where there are more opportunities than other countries, I think it is a natural development." It might not have seemed such a natural evolution to Supramu Santosa when he started out in the hard-scrabble province of East Java. When he got his first job, exploration and production were just taking off after Indonesia introduced production- sharing contracts as a reliable mechanism for splitting revenues with companies. Santosa signed up with a Japanese oil company that was doing Indonesia's first offshore exploration drilling. In his first year of high school, his father died, forcing the young Santosa to look for a job to help support his family. With little education, he worked hard and saved. He steadily climbed the ranks of foreign oil companies, becoming a purchasing manager for one of Gulf Western's Indonesian operations. After seven years he had $7,500 and took time out to put himself through the University of California at Berkeley, stopping because the money ran out. He went back to work for an oil company in Indonesia, saved again and returned to finish his degree. At 33 he had a master's in business administration at Berkeley. Meanwhile, in the 1970s and '80s, as Santosa was shifting in and out of business studies and work for multinational energy companies, oil and gas exploration and production in Indonesia was booming. Santosa followed the oil rigs to isolated regions of the immense Indonesian archipelago. He worked in administration, finance, operations, marketing and government relations. In 2003, after his last employer, Gulf Indonesia Resources, was bought by the giant Houston-based ConocoPhillips, Santosa took a gamble and went out on his own, taking along a few colleagues. Star Energy Group was founded by Santosa and Nusantara Capital, a securities company based in Jakarta, with the purchase of a 31.25 percent stake, and operating control, in a producing oil and gas field in the Natuna Sea for about $80 million. The stake in the Kakap field, which had been owned by Gulf, provides Star with a small but steady revenue stream from its cut of 7,500 barrels of oil and 58 million cubic feet of gas a day. Its other main income source is a 110-megawatt geothermal power plant in West Java, which Star acquired last year. But the real gamble for Star is to find a new oil and gas resource. The oil in Kakap is running out, although gas reserves are substantial. The company has bought rights to blocks in East Kalimantan Province, on the island of Borneo, and in Central Java. It is now drilling a well on the Central Java block. "In a month, we will know whether this is a bust or really a company maker," said Santosa. "This one well will cost $10 million. So the risks are very big. This will be the first test of our luck." If Star can find a substantial new oil and gas reserve, the owners plan to go public. Santosa said the company lacks the "growth story" to attract equity investors now. And for smaller players like Star, which do not have the deep pockets of the multinationals, one failed well can be a significant setback. But what distinguishes the local companies has been their feisty ambition to invest in exploration and expand by acquisition in Indonesia at a time when multinationals have sharply contracted their exploration budgets. Out of 30 exploration licenses awarded in the past two years, almost all have been taken up by local companies. Of Star's two publicly listed local rivals, Medco plans to invest $200 million this year in exploration and Energi Mega Persada about $50 million. Cockroft, the industry analyst, said the growing activity of small independent operators in Southeast Asia was due to two factors: the greater availability of finance and the diminishing prospects of finding another very big oil field. Without any large new reserves being found and brought to production in the past few years, Indonesia's oil output has fallen from about 1.6 million barrels a day in the late 1990s to an average of just one million barrels a day this year. In 2004, Indonesia became a net oil importer, raising a question over its future role in OPEC. The Indonesian government has set the goal of restoring daily production to 1.3 million barrels by 2009. Chris Newton, president of the Indonesian Petroleum Association, said the government target can only be reached by solving issues of legal certainty and security that have discouraged cash-rich multinationals from putting their exploration dollars into Indonesia in recent years. "Local companies alone cannot help Indonesia realize its objective of 1.3 million barrels a day in 2009," said Newton, who is also chief executive of Energi Mega Persada. But Newton acknowledged that this climate offers growing opportunities for local companies. Smaller local companies have been able to carve out a niche by targeting oil and gas fields that might contain as little as 10 million barrels of oil equivalent. The growth of a domestic gas market in Indonesia also provides a ready customer, even for relatively small gas fields. Newton has seen the growth potential up close. After Energi Mega Persada completed the purchase of a gas-producing block in East Java from BP in 2004, its gas production in the first six months of this year increased 278 percent to 3.7 million cubic meters, or 130 million cubic feet, a day and its first-half earnings leaped 369 percent, albeit off a small base. "Ten years ago, we didn't have these Indonesian-owned and Indonesian- controlled players," he said. "I think they are going to be increasingly important." -- --Writer need 10 steps faster than readeR -- --------------------------------------------------------------------- To unsubscribe, send email to: iagi-net-unsubscribe[at]iagi.or.id To subscribe, send email to: iagi-net-subscribe[at]iagi.or.id Visit IAGI Website: http://iagi.or.id IAGI-net Archive 1: http://www.mail-archive.com/iagi-net%40iagi.or.id/ IAGI-net Archive 2: http://groups.yahoo.com/group/iagi Komisi Sedimentologi (FOSI) : Ratna Asharina (Ratna.Asharina[at]santos.com)-http://fosi.iagi.or.id Komisi SDM/Pendidikan : Edy Sunardi(sunardi[at]melsa.net.id) Komisi Karst : Hanang Samodra(hanang[at]grdc.dpe.go.id) Komisi Sertifikasi : M. Suryowibowo(soeryo[at]bp.com) Komisi OTODA : Ridwan Djamaluddin(ridwan[at]bppt.go.id atau [EMAIL PROTECTED]), Arif Zardi Dahlius(zardi[at]bdg.centrin.net.id) Komisi Database Geologi : Aria A. 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