ASEAN-Russia: Foundations and Future Prospects

Indonesian and Russian Oilmen: Sharing Experiences and Learning from Each Other

254 INDONESIAN AND RUSSIAN OILMEN: SHARING EXPERIENCES AND LEARNING FROM EACH OTHER1 Victor Tarusin INTRODUCTION Since Russia is a top producer and exporter of hydrocarbons, it would be natural to dwell on what it might do in this capacity in Southeast Asia — specifically, in cooperation with Indonesia, Malaysia, the Philippines, Vietnam and Myanmar, where oil and gas resources of this region are mostly concentrated. The overlapping of the global crisis and the Fukushima nuclear disaster reminds us once again about the vital importance of energy security in all meanings of the term. Against this background, I wish to share some observations on the prospects of the Association of Southeast Asian Nations (ASEAN)-Russia cooperation in the oil and gas sector and on the lessons I have personally learned while doing business in the biggest oil-producing country of Southeast Asia. Since late Soviet times, when the VietSovpetro joint venture was established and started to operate on the Vietnamese shelf, we have enjoyed an excellent partnership in oil and gas production with Vietnam. Even the Russian domestic turmoil of the 1990s did not affect our position there. Two years ago these relations were further strengthened and diversified by the establishment of another joint venture — RusVietpetro. Created by the PetroVietnam and Zarubezhneft companies, it is designated to be the special Indonesian and Russian Oilmen 255 purpose vehicle (SPV) of a major oil-producing project in the Northern part of Russia. Furthermore, last year another Russian-based company, TNK-BP took over the BP shares in upstream and downstream assets in Vietnam. This kind of base, however, is not something we can rely on in any other ASEAN country. There, we practically have to start from scratch. The companies that I am associated with have been looking for opportunities in Indonesia since 2006. These efforts have been successful enough to serve as a base for advice to other Russian colleagues. Close cooperation with Indonesian oilmen has taught me a number of practical and useful lessons, and I believe that my Indonesian counterparts have learned something too. Let me now list these lessons one by one. LESSON ONE: PRODUCTION SHARING Before 2008 Indonesia was the only Southeast Asian country member of the Organization of Petroleum Exporting Countries (OPEC). But most of its oil fields are matured and annual natural decline is now about 18 per cent. Due to the sharp decrease in oil uplifting, Indonesia has suspended its membership of the organization since September 2008. Throughout the last five years, the government has been trying to increase exploration efforts by inviting foreign investors to participate in tenders for oil and gas blocks. Practically 70 per cent of oil production in Indonesia is generated by foreign oil companies — mostly such Western majors as ExxonMobil, Chevron, Shell, Total, British Petroleum, etc. Access to oil and gas blocks in Indonesia is quite easy and transparent in terms of procedure. Twice a year, the Indonesian Ministry of Energy and Mineral Resources announces open tenders for new blocks, providing all geological data to all interested parties. Foreign companies’ operations in Indonesia are regulated under production sharing contracts (PSC). These are signed with the government, represented by the regulating agency, BP MIGAS. The mechanism, created half a century ago and polished by many generations of professionals, is known as the Indonesian PSC scheme. Among its major attractive features is the signature bonus amounting to only US$1.5–5 million (while in Libya until the recent crisis it used to be US$10–20 million, and in Iraq — up to US$50 million). Also, the proportion of production sharing is quite fair — namely, 65 per cent to 35 per cent for gas and 75 per cent to 25 per cent for oil, for the state and operator respectively. 256 Victor Tarusin Compare it, again, to pre-war Libya where the government share was up to 90 per cent. In the Russian Federation, we have the opposite kind of imbalance. For example, under the production sharing agreement concerning the Khariaga oil field, in the Nenets Autonomous Region, the state is entitled to only 53 per cent of production. The Indonesian government is constantly trying to make its national oil industry more attractive for foreign investors. They continue to invent new incentive packages, like zero per cent import taxes for oil and gas equipment brought to the country under PSC terms. It should be mentioned, too, that the Indonesian PSC...