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The title of this article is the title of a recent three day workshop that was organized by SkkMigas that had apparently been arranged due to the concern that Indonesia has with the ever-growing gap between the demand for oil and what is being produced in the country, as well as the ever-increasing concern about the economics of the country with the spending on infrastructure projects being a concern and development in the natural resource industry not being as expected.
There are other concerns, such as the ever-growing reliance on Pertamina to take over blocks from International companies, to develop existing and hopefully new blocks, or a recent headline: Pertamina sells off shares to stay afloat, or the concern of Pertamina to meet the government’s policy of ensuring the availability of Premium grade fuel at one price throughout the whole country. One senior person from Pertamina said to me recently, we will survive until the election, but what happens after that, who knows.
This makes one wonder, how will Pertamina develop new or existing blocks? How will they carry out the exploration that is needed to meet the subject of this opinion piece which is an interesting title in itself for many reasons. When I was asked about finding Giant Oil & Gas Fields by Badan Geology, I said, Pak, the chances of finding Giant Fields is fairly low, because if they were available they would have been found by now with existing methods of exploration. I was to learn that what they meant by Giant Fields is anything that contains a probable reserve of 500 million barrels of oil, (Giant oil and gas fields = those with 500 million barrels (79,000,000 m3) of ultimately recoverable oil or gas equivalent. Supergiant oil field = holds equivalent of 5.5bn barrels of oil reserves).
This is a different story then, as it is known that there are fields that contain this amount and above, just waiting to be confirmed and exploited, one such field has been known about for several years which contains something in the region of 1 billion barrels of oil, as well as gas and condensate, but due to political and other reasons this has not been developed until now.
The author of this article has written several times that Indonesia does have the potential to be self-supportive in resources, if only the knowledge of the country’s resources was known, sadly to say until now, the potential of the country’s resources is just that, potential. What has become apparent from the workshop organized by SkkMigas is that many people are concerned with the situation, but very few (if any) are prepared to take the risk for exploration, which does include the country’s own banks and entrepreneurs. What does risk mean? Put simply, it means loss of money. In my view, Indonesia is no different to any other country, the people in the country do not like to lose money, so why does Indonesia expect investors from other countries to lose money when they are not prepared to accept the risk themselves?
How to minimize the risk?, how to increase the success rate from 15%?, which is what Pertamina achieved last year for drilling of new wells, although this is not too far below the accepted success rate within the industry which is in the region of 20 – 25% (the normal). These figures can of course be argued about from company to company, but the overall success rate is low, if you were a gambling person, you would unlikely accept these odds. The answer is simple, technology, a technology that has been developed by people of the trade, not by some mad scientist, technology that has been used in different countries with a high success rate. Contrary to believe, Indonesia is no different to any other country when it comes to geology, yes Indonesia has complex geology such as volcanics in Java, deep water in East Indonesia, difficult terrain in Papua where some of the technology that is used today does not allow a detailed exploration survey to be carried out. I can name a number of other countries that have extremely complicated geology that has been successfully explored with technology. The old excuse that the technology has not been used in Indonesia does not wash, how can it be used if people do not want to accept technology readily? It does appear that SkkMigas is waking up, they realize that if they do not adapt to new technology faster, then the situation will not improve.
Technology that we take for granted has come a long way in the past twenty or more years, where did the technology come from? Normally technology comes from someone seeing a problem and asking a simple question, how can we do this better. I was giving a presentation the other day, when someone said, we have not been taught this in University, so how can we believe that this works, where I replied, it has been proven in many other countries with a high success rate, can you as a geologist work in another country, where the answer was “of course we can” where my reply was, if you can do this, why can technology that works in these countries not work in Indonesia? Technology that has been developed by people such as yourself which is based on geology, of course, there was no reply.
The point of this article is that Indonesia appears to be ready to accept technology, although there are still divisions within the government (ESDM) where you have so many different interests, what is required is that one central policy is required for technology and not so many different empires, it should be united.
Most people will accept technology from the medical industry that can save life’s, the same people in the exploration industry are reluctant to accept technology that not only improves the success rate of exploration but will create jobs for people as companies are exploring at reduced costs which in turn relates to reduced risk.
Indonesia does have the potential to meet its energy needs, to meet its goals that are agreed with increased success and reduced costs, as long as people are willing to accept technology and make decisions.
“Baby Giant Fields” are waiting to be discovered.
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Market Watch
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Upstream
Midstream & Downstream
Natural Gas/LNG
Forecast Highlights
Global liquid fuels
Natural gas
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
1. ExxonMobil:
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
2. Shell:
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
3. Chevron:
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
4. BP:
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
5. Total:
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)