Fri, 22 Dec 2000

Caltex renews hope after a gloomy year 2000

By Berni K. Moestafa

JAKARTA (JP): Bruised by conflicts with locals and labor, entangled in a political tug-of-war between the local and the central government, Indonesia's largest oil and gas company takes a look back at an eventful year 2000.

"The year 2000 wasn't exactly our best year, no, it wasn't smooth sailing," president of PT Caltex Pacific Indonesia, Humayunbosha said in an interview with The Jakarta Post.

Frequent unrest eroded Caltex's average production level to 710,000 barrels of oil per day (bpd) from its target of 740,000 bpd.

However, he said his company had worked hard to get where it was now and was undeterred by the ongoing crisis.

Caltex's hope was fueled by the continued support of its shareholders, employees and partners, Humayunbosha said.

"We have been operating here for 70 years and have passed difficult times in Indonesia. If we do our best we'll be fine," he said.

Located in the province of Riau, Caltex was founded in 1936 by the American oil companies Chevron Corp., formerly known as Standard Oil of California, and The Texas Company Inc. (Texaco).

The company accounts for about 40 percent of Indonesia's total crude oil production.

Humayunbosha, who joined Caltex in 1974, said that the company contributed some 50 percent of the country's oil revenue.

But Caltex has come under the media spotlight due to a multitude of problems ever since the downfall of former president Soeharto in 1998.

His resignation followed a general break down of law and order that surfaced long withheld resentments against foreign oil and gas or mining companies.

Being the country's largest oil producer, Caltex was one of the first to feel the sting of the reform euphoria.

In December 1998 and in June the year after, workers of one of Caltex's major subcontractors went on strike and disrupted the company's operations.

In April 1999, some 1,500 students demonstrated before a housing complex belonging to Caltex, after the company dismissed their demand that the province be given a 10 percent share of its revenue.

But in late 1999 when the country's first democratically elected president, Abdurrahman Wahid, took office, expectations ran high that Indonesia was nearing the end of its crisis.

His election came amid growing cries for independence in the country's far flung provinces of Aceh and Irian Jaya. Other provinces joined the clamor, including Riau.

Then, in January this year, police injured at least 10 students when it broke up a sit-in at Caltex's office during a protest against the company.

Caltex turned down the students' demand to shut down its operations for three days in observance of the Riau People's Congress.

Up to November, Caltex's production dropped by between 15,000 bpd and 20,000 bpd following a blockade of several of its oil rigs by job seekers whose applications had been rejected.

Weeks later, a group of farmers set fire to four of Caltex's oil wells in the Bengkalis regency, which temporarily halted production.

The farmers were believed to be disappointed by Caltex's unwillingness to pay compensation for their land because their were deemed as not eligible.

Still in November, some 3,000 workers of Caltex's contractors went on strike again.

Caltex claimed it had lost an average of 30,000 bpd due to the unrest.

"This is not Indonesia's real face," said Humayunbosha, "if the country is sick, everyone is affected."

He said that in conditions like these, adaption was the key to survive in the country.

As an illustration, Texaco has proven capable of operating under a dictatorial leadership in one of Africa's countries as well as under a highly democratized country such as the U.K., he explained.

Caltex's shareholders, he said, remained committed to Indonesia, unless conducting business here became unfeasible.

"If political risks run too high, it is best to invest the money in other safer places," he said.

The frequent run-ins with the locals also prompted the company to improve its relations with them, according to him.

Caltex's community development program, he said, must give stronger emphasis on building relations.

Although the company has helped Riau build its infrastructure, such physical contributions were not a priority in the company's community development program.

Unfortunately, he said, people placed more value on money and material objects these days.

"Our employees' wives teach at their schools, but they (the locals) don't see that as a contribution," he said.

The company, he said, did not value a project by its costs, but by the benefits it could bring to the local community.

"If our community development is only in the form of charity, people will soon think that it's their right," he said.

According to him, a company's obligation is defined by ethical business practices and its compliance in paying taxes.

"Community development is what sets apart one company from another. Only if companies are able to make profits can they afford community development programs," he explained.


Humayunbosha further complained certain local politicians, who took advantage of the locals' resentment against Caltex.

The ownership of one of Caltex's oil fields, has also been the center of a political dispute between the local government of Riau and the central government as well.

Caltex's production sharing contract over the Coastal Plain Pekanbaru oil field (CPP) will expire in August next year.

At present, the company, the state-oil and gas company Pertamina and Riau are all vying to control the block.

Initially, in 1998 the central government instructed state- owned oil and gas company Pertamina to form a joint venture with Caltex for the operation of the oil block.

An intense negotiation followed to determine the two companies' respective stake in the joint venture; but Riau began its own lobbying.

Pertamina and Caltex were about to reach an agreement on a 55 percent and 45 percent share in the joint venture, when President Abdurrahman bowed to pressure from Riau.

To the dismay of both companies, the province was given the green light to participate in the oil block's development.

The president's unexpected move disrupted plans for the transition of the ownership of CPP.

Months of indecision ended, when the government chose Pertamina to own a majority stake in the joint venture.

Yet this decision almost effectively ousted Caltex from the CPP oil block.

Humayunbosha said he understood the province's wish for recognition of its natural resources. "Though to investors, this all appears like efforts to nationalize (the oil block)," Humayunbosha said.

In 2005, he said, Caltex's contract over the Mountain Front Kuantan oil block would also expire.

"What will happen then? Can we still operate the oil block? If not, why should we continue investing there?" he said.

He said that the company must continuously invest in their oil fields to at least maintain their production level.

"Otherwise, we can just become oilplumbers; and that's very simple, anyone can do that," he said.

A sign of Caltex's commitment was that its five-year business plan remained unchanged despite the prevailing crisis, he went on.

According to him, the company will spend $450 million annually for the next five years for its operations.

"This is an achievement in a crisis situation like this," he said of Caltex's shareholders who had refrained from revising the five-year budget plan.

At present, Humayunbosha said, the company's investment focus was on drilling more oil from its existing fields.

The Minas oil field, which is the largest oil field ever discovered in Southeast Asia, contains another four billion barrels of oil since drilling there began in 1944.

The Duri oil field has an additional five billion barrels of oil since the first drilling started in 1941.

"If we can extract just one percent of all of that, it would already be more than enough," he said.

Caltex plans to produce a total of six to seven billion barrels of crude oil within the next 25 years, using enhanced oil recovery technology.

The biggest challenge for next year, Humayunbosha said, was the "classic" challenge of maintaining oil production level.

Humayunbosha also placed hope on the implementation of regional autonomy in January next year.

According to him, the implementation of regional autonomy would help improve the relations between Caltex and the people of Riau.

"This is a chance to improve relations and understand each other," he said.

With the implementation of autonomy, the government hopes to empower regions by granting them greater autonomy to manage their own affairs, including their economies.

"If needed, we are there to help," Humayunbosha said.