SKK Migas: The efficiency equation

How has the Indonesian upstream been affected by lower oil prices?
The current situation is similar to other countries. Prices are lower than they used to be. This makes E&P operations have a slower impact on the industry. The question is how to survive and improve as producers, then how to produce better. We also want, for our own purposes, to make our industry more efficient and faster.

How can you help to improve the sector?
The key is how to make this industry more efficient and cost effective. That is why I told my team at SKK that my thoughts are on the upstream players as well as their vendors. We have to work together, we have to work faster and we have to become more efficient. I have said that since the beginning, and I am still saying that.
How do we make the industry faster? Upstream players mostly contract drilling, construction, seismic and other things to vendors. How do we make the contract and procurement processes faster and more efficient? We work together – SKK and our offices here – to create centralised and integrated vendor offices. We started in 2016. This is more efficient because previously, if any vendor wanted to participate in a procurement process for bidding, the vendor had to register for the particular contractor.

What has changed about the procurement process now?
The procurement contract value that can be approved by the contractors has been increased from USD 5 million to USD 20 million. Contracts valued above USD 20 million require SKKMigas approval. It does not mean that we reduced the quality of the contract system. We put the CIVD into place. The contract systems are now stronger and faster. The prequalification processes used to be much longer, now we are aiming at only one week. Our administration has already reviewed and documented these companies. Any company that we want to review, we take from CIVD. We are working faster and more efficiently together.
Mostly we want to eliminate bribery and kickbacks. That hinders the competition and leads to higher costs. My view is not anti-corruption. My view is to make the industry more efficient. That is the only way. Fortunately, the way we do this is similar to the way you make things more transparent. My objective is efficiency and speed.

What is the most important policy in terms of improving efficiency, production and exploration?
In order to increase production, existing processes and facilities must be made better. Then maintenance efforts should be improved. The production process performance must be made as high as possible. For exploration, we try to help the operator identify their difficulties. We categorise those difficulties internally and externally. Internally we look at their financial systems and follow that with permits and other things. After identifying those things, we try to focus on the problems that must be solved. Many PSCs in E&P do not have money. For that, we monitor. Then we try to understand what their problem is and how to solve it. We know in general the problem is that, many years ago when they got their blocks, they told us returns were not popular. Many companies that did not have any money could not develop.

Will the due diligence process improve?
Yes, we already see that the director-general of Migas has improved due diligence efforts. We are already making sure that companies approved for blocks are liquid. The first priority is money. If you need technical capacity, then you can hire people or buy technology. If you want to capitulate risk, you can hire people. The key is money.

Which of the new regulations is the most relevant?
The concept of the new gross-split PSC is to make things more efficient. This is important because investors are looking for returns. SKK Migas is also looking for returns, for equity to be split. How do we maximise equity to be split for the operator and SKK, the representative of the government? How do we maximise production? How do we push the cost as low as possible? To do that, the government agreed that the gross-split PSC should make the cost as efficient as possible to get more margins. With better margins, we will get better returns and get there more efficiently and faster. More efficient operations will yield higher returns, which will make the investors happier.

How do you see the sector evolving over the next several years?
I have checked oil prices since 1980. Now the oil price is around USD 45-50, sometimes 52. It is not the lowest price. Many years ago, it was very low. Many years ago, the industry survived. Now at this price, the industry will survive. That means oil and gas will continue. Looking at public demand, people will still need energy. More people are talking about electric equipment, including cars. Any electric equipment needs electricity. Energy for electricity mostly will come from fossil fuel resources. We will continue.

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