An impetus for exploration in IndonesiaJuly 1, 2020
Andrew Livsey, CEO of Horizon Geoconsulting, talks to The Energy Year about whether changes brought about by the pandemic will be lasting ones and positive prospects for new venture exploration in Indonesia. Horizon Geoconsulting provides geological services and data management in Southeast Asia.
Could you tell us about the impact the pandemic crisis has had on your business?
Our wellsite work has been affected the most. That has essentially stopped because we can’t travel. We were working on a project in Papua New Guinea, providing drilling services, but that was suspended because of the pandemic. We hope to complete that when we can travel again.
We are now working on office-based projects that can be handled from home. These comprise well post-mortems and analyses – stratigraphic and geochemical interpretations. While these have a laboratory component, we have been able to get our labs working again with fewer people and appropriate working spaces. The specialists doing the analyses and interpreting the results have been able to do this from home.
We have been working on several projects of this type for companies exploring in eastern Indonesia and these have progressed well with the use of online meetings both internally and with the clients. We anticipate that the in-house work will take us through to the end of the lockdown period and beyond.
Our data management personnel have been busy working on internal projects compiling digital data from old reports, intended to provide both saleable databases and information to enhance future regional geological studies. We have developed in-house software to improve the speed and accuracy of this digitising work that our staff can access remotely. We have done this type of work on a confidential basis for numerous oil companies and hope that the establishment of an open file system in Indonesia will provide opportunities to commercialise these regional databases.
Where there has been an impact is that oil prices have plummeted due to global lockdowns and price wars. We are starting to see companies looking to cut costs, both by reducing employee numbers and by cutting back future work programmes. We anticipate that these cuts will strongly impact our wellsite services in Papua New Guinea and eastern Indonesia, where we had existing contracts or were bidding on projects for 2021 before the price collapse. I won’t be surprised if these projects are delayed or cut.
We are hoping though that exploration, production and development projects where production infrastructure is already in place may take priority over wildcat exploration as much of our work in PNG is associated with ongoing field development projects.
We are experiencing the coronavirus and oil price shocks at the same time. Which is affecting your industry most severely?
The oil prices. While the coronavirus pandemic has compelled us to modify our business operations, we have been able to continue working. The oil price shock has caused our clients to reduce costs quickly, even to the point of cancelling work that we already have in-house. We don’t see this changing in the short term.
Do you think we are witnessing a fundamental realignment of markets with the reduction of air travel and increased concern about the use of fossil fuels, or do you expect these to be temporary effects?
I think there will be changes but I don’t think it will have as much of an effect in the Asia-Pacific region as in Europe. The future demand for energy in this region, and the dependence on oil and gas, is well documented. While that demand has been reduced dramatically due to the impact of the pandemic, I expect that will only be short term. While countries like the UK are looking at linking business incentives to a reduction in carbon footprints, the growth in energy demand in Asian countries will make it very difficult for them to reduce the relative mix of fossil fuels in their energy generating mix.
For countries like Indonesia, the increased demand for energy to fuel industrial growth will require growth in the use of fossil fuels, renewables and unconventionals. The mix in fossil fuels may change with an increased focus on cleaner fossil fuels like natural gas and less reliance on coal. International banks may be less likely to fund coal-fired power station projects, which may lead to a push for more use of natural gas.
Indonesia is struggling to meet its natural gas export contracts and provide for the growth in domestic requirements. This may explain why Indonesia is pushing hard to bring new gas development projects on stream quickly and it could drive further exploration incentives in the country.
I suspect that development of nuclear power in Indonesia is going to be very slow but there does seem to be a recent push for hydro and wind projects based on recent press reports, so the government certainly recognises the need to include other energy sources in its energy mix.
Do you see increased opportunities for your business once the crisis passes?
We anticipate that once travel restrictions ease we will see a slow return to normal work levels, as oil prices recover and companies restart delayed projects. We expect that the Indonesian government will be pushing for more investment in hydrocarbons exploration in the country, which may generate additional business opportunities.
Do you expect a streamlining of government red tape?
The Indonesian government has been making great efforts to reduce red tape for businesses but it can still take some time before this translates into more efficient business operations. There is talk of a new petroleum licensing round being announced soon in which companies will be able to nominate either gross-split or PSC terms. While this may not necessarily streamline the process, it may make these rounds more attractive to bidders.
The decision to allow companies to use firm work commitments in work areas to fund surveys in open areas should release significant funds to new venture exploration, with the aim of identifying new areas for hydrocarbons exploration in the country. This will greatly benefit existing operators, including Pertamina, and should also lead to significant work for service contractors and consultancy companies like ours.
Pertamina is close to completing a major new seismic survey in eastern Indonesia under this arrangement. The new regulation on data management and utilisation (No. 7, 2019) will make data like this and associated studies available to other companies within 12 months, further stimulating new venture interest. These initiatives will provide added impetus to new exploration in the country.
There is already stiff competition between countries, and going forward there will be even more caution due to pricing. Do you think Indonesia can emerge as a winner out of the current situation?
Indonesia needs to attract new investment to allow the country to meet its energy demands without importing more hydrocarbons. Indonesia has been notoriously slow at recognising the impact of global competition for exploration dollars. They are, however, looking at ways they can improve things and seem more open to collaboration with the industry to try to provide contractual terms that are attractive to all parties.
The importance of Pertamina as a producer is increasing as major producing PSCs are taken over by the company. Both Pertamina and the government know that it is imperative that production from these PSCs does not fall as a result of these transfers so they need assistance from foreign oil companies, particularly for offshore projects, where they have less experience.
While improved fiscal terms and contractual certainty are key for attracting exploration dollars, access to information is also an important consideration for companies wishing to invest. The long-awaited establishment of an open file system, announced in 2019, will improve Indonesia’s competitiveness in attracting exploration investment.
How would you rate the local authorities in their response to the crisis?
They have reacted as best they can. They were a bit slow in starting and the national government wasn’t willing to put restrictions in place. It was actually the local government of Jakarta that instructed businesses to start working from home and closed shops and restaurants, as the national government worried about the impact of such measures.
The conditions were accelerated by the need to ensure any outbreak was contained in Jakarta by cancelling the Lebaran holidays, which normally see millions of people leave Jakarta for their hometowns. This was successfully achieved. While there has been less direct government support for closed businesses, both the government and private companies have been providing support to the poor in the form of food parcels, etc.
As restrictions are now starting to ease, it is important that infection rates are kept low through social distancing. I have been very encouraged by the plans put in place by shops and businesses, with support from the government to try to achieve this.
- From the field