We must maintain our production levels and the only way for us to do that is with EOR.

Gong BENCAI President PETROCHINA INTERNATIONAL COMPANIES IN INDONESIA

PetroChina promotes production in Indonesia

December 21, 2017

Gong Bencai, the president of PetroChina International Companies in Indonesia, talks to TOGY about the need for gas pipeline development in the country and the importance of EOR. PetroChina entered Indonesia in 2002 with its acquisition of Devon Energy Companies. Indonesia was one of PetroChina's earliest international ventures.

Headquartered in Beijing, PetroChina is the largest oil and gas producer and distributor in China, and the third-largest oil and gas company in the world by market capitalisation. The firm is an arm of state-owned China National Petroleum Corporation. While the fall in oil prices has had a significant negative effect on the hydrocarbons industry in Indonesia, PetroChina seeks to remain in the country to assist with the application of EOR techniques in Indonesia’s oil and gas developments as the market recovers from the shock and becomes more robust.

• On the rise of EOR in Indonesia: “We must maintain our production levels and the only way for us to do that is with EOR. In this country, there was never an interest in EOR because there was such a huge resource here. But today, we are living in a different situation.”

• On regulatory reform: “Every time we sit with the government, we have a great discussion; they are very excited.”

• On the gross split: “The gross-split scheme is similar to a licence contract. In this contract, there are principles of regulations trying to provide more deliberation to the oil and gas industry, allowing us more power in the decision making. This will allow us to act quickly and to operate faster.”

Bencai also discussed the role of natural gasfield development in Indonesia and future development plans. Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Gong Bencai below.

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What have been the main highlights and projects of 2016 and the first semester of 2017 for PetroChina?
While it is not a new project, we have been working on Jabung for the past 15 years. Jabung is currently our largest block in Indonesia. Frankly, we didn’t have bigger projects last year. For that reason, we are looking for newer and bigger projects for expansion this year in addition to our effort to keep up our production in Jabung. Last year, our main task was to deal with our operating costs given the crisis in the industry. Even though oil prices were very low last year, we still made a profit and gained some cashflow.

PetroChina has been in Indonesia for 15 years. What are some of the major changes that the company has seen in the market here?
We are trying to maintain our production and our current supplies. Now, we are thinking to broaden our business here. In the past, we solely focused on the onshore aspect, while today we are looking into the offshore business. We used to focus on the upstream, but today we are considering both mid and downstream. In the past, we tried to operate the block, and today, however, we manage to be the operator or the partner.
The key is to enlarge our business here in Indonesia. The first reason for this is because Chinese government has launched the One Road One Belt policy, and Indonesia is one of the most important countries in this region at the moment. The Chinese government prepared a very good fund to develop infrastructure in this region. In our industry, pipeline construction should be part of the infrastructure here. Rather than focusing on roads, airports and so on, like so many others do, we are focusing on the pipeline issue.

 

Are you planning to bid on any of the blocks that are going to be awarded in the next year?
These 15 blocks including 10 that are conventional and five that are non-conventional. Generally, we are interested. We have a task force in the company after Minister [for Energy and Mineral Resources Ignasius Jonan] visited our headquarters in Beijing and introduced the blocks. We are currently in the process of acquiring some from the government.

Natural gas is also one of the company’s core businesses. What is PetroChina’s focus in Indonesia for natural gas?
Our focus is not only in the development of oil but also gasfields. There will be a lot of domestic demand because President [Joko] Widodo wants to build more electricity plants and develop the Papua region. Especially in Indonesia, where the reserves of gas are larger than the oil, there is a very large domestic market. We wanted to develop this for poorer regions as well. We have two blocks in those regions. Consequently, in the future, we will be able to pay more attention to this region. The region itself is somewhat remote and there is a rich reserve of gas there.
We should be co-operating with the government on this gasfield. The government can use this gas production for the local people and for the domestic economy. While we are a national company in China, we are here trying to establish new friendships rather than only making profit. We want to support the government to do well for this country. In a sense, they are also supporting us as well insofar as they granted us blocks and opportunities. We must give something in return for the government and for the local people. This is our philosophy.

Are you planning to implement or test EOR techniques in Indonesia?
Yes, we are. In fact, we have already started the technical works. In our research centre, there are many labs, one of which is our national lab where we are conducting the EOR tests. Because of the time restrictions, in June we could not go to the field. However, we are planning to revisit China and our fields to see how PetroChina is using EOR to improve oil production. The oil and gas industry in China during the 1990s was founded by the Chinese themselves. At that time, we were not operating overseas. The West wanted to isolate China, while the Chinese couldn’t get any acknowledgement from the world. We had no choice but to do everything by ourselves.
After this time, we saw reforms to open doors. We liked these foreign investors, such as Exxon, seeking out our offshore business in China. From 1993, we have been operating as an international company. Today we know what is happening in the industry; we know the best practices. Chinese oilfields are very old, compared to those in here. They started as early as the 1950s. It’s been functioning for approximately half a century. We have a large population and we are developing our economy. Therefore, to attain sufficient energy, both oil and gas, it has come to our awareness that we must first rely on ourselves as opposed to solely relying on international companies.
For example, 10 years ago the Daqing oilfield was the largest in China, and one of the largest in the world. Its daily oil production was larger than 1 million bpd. When it reached peak production, we used our EOR to keep the peak at a certain level for 20 years. The production pattern in Indonesia always rises and falls. However, in China the production of this particular oilfield rose and we maintained those production levels for the following 20 years. Only then did the levels drop. Today, the production data shows 800,000 bpd. This is still very good. This is typical example of the oilfields in China such as Jilin. We must maintain our production levels and the only way for us to do that is with EOR. In this country, there was never an interest in EOR because there was such a huge resource base here. But today, we are living in a different situation.

How is PetroChina adding technology value to EOR techniques?
We inject carbon dioxide to increase oil production and oil recovery. The CO2 is injected to the oil reservoir and mixes with oil in the reservoir resulting in the oil becoming easier to flow and generating higher oil production and oil recovery. We have this technology. We have been conducting these studies for approximately two years. We have seen that the technology is successful in China. We don’t need to conduct any more studies. We just need to bring the team here and start working. We received new information so we are trying to speed up this project by using CO2 to increase the oil production.
This project is supervised by President Joko Widodo. This means that we must be successful. If we are successful then we will be the only company in this country among 200 oil and gas businesses that uses CO2 to increase production.
This CO2 project is influenced a lot by the temperature. If the temperature is high, as it is in Indonesia, we cannot perform this kind of EOR here. Thus, we need to solve this dilemma of the high temperatures to work to our advantage. Our team is currently working on this problem.

What is your opinion on the reforms and the regulations implemented by the government?
The current public energy sector cares about the international investment in the country. They are trying their best to attract it, and we support all the ministry’s policies. Minister of Energy and Mineral Resources Ignasius Jonan looks into Chinese companies in other sectors as well, such as hydrocarbons. I came into this industry and into this country earlier than the minister. He only came into that position last year. However as we can see, the ministry has already issued 10 regulations, and there has been progress and principles to make conditions better for oil and gas investors. For example, the gross-split scheme is similar to a licence contract. In this contract, there are principles of regulations trying to provide more deliberation to the oil and gas industry, allowing us more power in the decision making. This will allow us to act quickly and to operate faster.
Traditionally, we would need to get everything approved by the government. The procedures that come with bureaucracy are slowing down the processes. This would damage our investments. For example, the bidding process of major services would need to be approved at every stage of the process. This would take approximately one full year to complete. Any action would have to be postponed for a year. The government wants to increase production; and to achieve that, they need to support the business. They need time to sit down and discuss these issues with us because it is a new policy and a new scale. To put something into practice, you need more details and strategy.
Last time we met with the president-director of Pertamina, he said we would do the gross split for the first time. We used to complain about the government. They would push us to attract more investment but [at the time] our contracts were only valid for five years. If we were to invest, we would not be able to see any return after the exploration phase. They already issued Regulation 26 to tackle this problem. Now another new regulation states that a private company doesn’t necessarily need to work together with a national company. Every time we sit with the government, we have a great discussion; they are very excited. We are ready to be partner with all oil and gas domestic and international companies in Indonesia.

You just celebrated your 15-year anniversary of PetroChina in Indonesia. Where would you like to see the company in five years for its 20-year anniversary?
In 2012, our 10-year anniversary, our production was on the top, as well as the price. The oil prices were over USD 100 per barrel. Five years later, during our 15-year anniversary, everything seems to be frozen. Prices are low. Production is low. I hope that when we celebrate our 20-year anniversary, we must achieve the same marks that we were hitting in 2012 from the production to the management, for everything except for the price of the oil – because we cannot control that. Jabung produced 100,000 bpd. Now, it is only capable of producing half of it. Five years from now I hope that we will be back to producing 100,000 bpd or even higher. In 2027, 10 years from now, we must double that number.

For more information on PetroChina in Indonesia, including the company’s potential foray into the offshore sector, see our business intelligence platform, TOGYiN.
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