Indonesian and Russian Oilmen – Sharing Experience Learning from Each Other

PT Petros Technologies Indonesia Executive Director Victor I. Tarusin has exposed his practical view on the prospects of strategic developments of ASEAN-Russia cooperation in oil and gas sector based on live experience of doing business in Indonesia.

Below is Mr. Victor I. Tarusin`s speech at the Conference ASEAN-Russia:  Foundations And Prospects in Singapore, 27 April 2011:

“As soon as everybody calls Russia resources dependent country – it would be natural to start ASEAN-Russian relation in the field of hydrocarbon resources.

ASEAN countries are also rich in natural resources, but hydrocarbons mostly concentrated in Indonesia, Malaysia, Philippines, Vietnam, Myanmar. 
 
Cooperation in this field will create obvious synergy that was proven by the recent Global Economy crisis and devastating events in Japan that showed how vulnerable our society in front of natural disasters. The vital point is energy security.

Historically since USSR times we have well established relations in oil and gas with Vietnam. That is the only bridgehead and fore post of Russia in the South East Asia. Even turmoil of 90s did not affect our position there.

Moreover two years ago these relations were strengthened by establishment of mirrored Russian-Vietnamese oil producing company within the territories of the Russian Federation - “Rusvietpetro” JV of Petrovietnam and Zarubezhneft – the SPV for big oil producing project in the Northern part of Russia.

Furthermore another Russian based company TNK-BP last year overtook BP shares in upstream and downstream assets in Vietnam.

That is the best example to follow in our  oil industry relations with other ASEAN countries.
There is only one difference – starting point in other countries is a ground zero.

My company has explored Indonesia since 2006 and has reasonable success records and can provide a kind of guidelines for others.
Sharing of practical experience with Indonesian oilmen enriched both sides and I will list my Lessons learnt below

1. Lesson from Indonesia to Russia - Production Sharing

Indonesia till 2008 was the only regional country member of OPEC. Most of oil fields in Indonesia are matured and annual natural decline now is about 18%. Due to sharp decrease in oil uplifting in previous years, since September 2008 RI postponed its membership in the organization.

The Government of Indonesia recent 5 years has increased exploration efforts by means of attracting foreign investors to participate in tenders for Production Sharing Contracts.
 
Before 2008 there was no single Russian oil company in Indonesia.
It took me one year to fulfill penetration project and in November 2008 the first ever Russian oil company Sintez Group signed PSC for off-shore Block East Bawean I. We hit the road for others and believe that soon there will be at least two Russian companies on this list. 

As for Sintez – they recently completed 2D seismic acquisition program and schedule to drill the first exploration well in the end of this year. To pass all preliminary steps in the tender procedure – for us newcomers – was a real  challenge.

That was our first success that gave us hope to expand to other fields of activities. Practical presence in the industry provides brilliant opportunities of B2B and P2P communication.

What I got from this project – a new understanding of Production Sharing mechanism!

In 2006 – 2007 I worked as a top manager in one Russian Oil company involved in Production Sharing Contract with French Total and Norwegian Norsk-Hydro. PSC in Russia has very bad reputation in principal. We have only 3 PSC and general public opinion on them is negative.

For two years I was strongly against PSC in principal – fighting with Total, defending state interests and trying to understand how it was possible for our authorities to sign such unfair contract in the mid 90s.

While studding Indonesian PSC I found a lot of similarities (as soon as in Russia we used Indonesian scheme for our PSC invention). But at the same time original Indonesian PSC is much more state – oriented, than Russian one.  Split in shares is obviously in favor of the state 75/25 (or 85/15 net) against 53/47 in our case in Russia, cost recovery mechanism is also tougher in Indonesia. It could not be motivated only by climatic differences between two our countries.

Since 2008 – I’m a supporter of PSC and try to call our authorities’ attention to Indonesian experience in PSC controllable application.

That is not a unique exploration matrix – but in such ambitious projects like Arctic sea off-shore exploration – there is no other possible alternative. That was my first lesson learnt from my Indonesian experience.
    
2. Lesson from Russia to Indonesia – Enhanced oil recovery

Working closely with representatives of professional oil community I made real friends and designated most promising points for further expansion of our business relations. It was Enhanced oil recovery. 

As I mentioned earlier – the main problem of Indonesian oil Industry – production natural decline at matured oil fields. New discoveries fail to cover demand/supply imbalance. 
 
Russia is a motherland of all Enhanced oil recovery technologies World Wide.

Most of them were invented in the second half of the 20th century in Soviet Union times in the Oil and Gas Research Institute VNIINEFT. Our company Petros Technologies is originated from that institute. We have more than 20 patented technologies in our portfolio. Success records counted more than 80 projects with practically 100% success rate.  
With all this legacy we came to Indonesia. 

Indonesian oil industry is US dominated – and that is natural thing – most of oil production provided by US based Majors like Shevron, Exxon and ConocoPhilips. 

I would say EOR was a bilateral lesson:

From one side – we exposed to Indonesian oil engineers wider range of technologies. In the most companies in Indonesia Chemical flooding considered to be the most effective if not the only remedy in the range of secondary production technologies.

Most exiting this lesson was for one leading engineer from Pertamina technological Center Pak Bazuki Soenandar – who was delegated to Russia to inspect our oil fields in Siberia. Occasionally it was November and temperature was minus 35 C. 

From the other side we got a hard lesson of restrictive rules and procedures in the form of certification (API, while Russian state standards usually are much tougher).  Without API certificate you can’t do anything.
 
3. Lesson – Geographical diversification

I made a lot of efforts promoting Indonesian oil exploration and production market among Russian oil producing and service companies. Before 2008 most of them were reluctant even to listen to. However after Global crisis – things changed. I got several requests from big Russian oil service companies to arrange their entrance to Indonesian market.

In crisis Russian oil service companies were put on the edge of survival – oil producers cut their investment budgets and service companies lost a lot of contracts. But in Indonesia with its 240 PSC there was no such problem – considerable part of services under PSC is secured with performance bonds and of course supported with cost recovery mechanism. That is why Indonesia in 2009 – 2010 became a safe heaven for many oil service companies.

The weak point of our business is still lack of strategic view – we start to think on the opportunities for diversification when it is too late.
  
4. Lesson – Information and Infrastructure – two keys to the market

For five years colleagues from Indonesia used to ask for crude and oil products deliveries from Russia to South-East Asian market. Some of them tried to make their wish a reality and signed unrealistic contracts with international frauds. We made a lot of investigations and helped many Indonesian businessmen to avoid losses.

Only after commissioning of pipeline system East Siberia – Pacific Ocean dreams came to reality! Since January 2010 Russia broke the oil window to the East.

And now it is again turn for information – to optimize crude oil trading arranging direct links between Russian oil producers and Asian end users – regional refineries. So far most of deliveries are exercised through traders.    

5. Lesson – Communication is a paramount – (Act Locally – think Globally)

Working in the international environment provides us with the ability to identify targets of opportunities in the areas adjacent to your core activities. 

It brought us to the decision of arranging Technological seminars which attract experts from oil and gas and adjacent industries. Inviting our partners from Russia and Indonesia we have created business platform that linked together businessmen and companies from the two countries.

It has already given the first result – we completed certification of NANO fire extinguishers and in May launching retail sales in Jakarta.

Linkage of businesses is not an easy process. B2B and P2P relations require initial stage of trust building. I call it “wider communication” that includes initial information on partners and company screening. In our communication activities we cover these fields and provide minimization of risks for both sides of cooperation.

I mentioned just most important Lessons I learnt in the process of work with Indonesian oilmen.  Five years of cooperation with the country is like a University degree or MBA. We will expedite our cooperation if increase our inter-communication, when each next businessman will not repeat our mistakes but will start from the platform we built. Hope it is right for both sides of cooperation Russian and Indonesian oilmen.”