Richard Ness : Editorial & Opinions : Oil Giant Taps The Ground For Smooth Operations

Oil Giant Taps The Ground For Smooth Operations - 22 Apr 2006
by John McBeth

Oil giant taps the ground for smooth operations

Byline : John McBeth, Senior Writer
Article : 1470 Words
Date : 22 April 2006
Publication : Straits Times – English
Copyright : 2006 Singapore Press Holdings Limited

ExxonMobil faces two challenges as it develops the Cepu oilfield in Java

JAKARTA - IN THE four years before the signing of last year's historic Aceh peace agreement, harassment by separatist guerillas forced American petroleum giant ExxonMobil to hunker down in fortress mode, its natural gas fields on the northern tip of Sumatra guarded by more than 3,000 government troops and its own behindthe- fence security force.

That is not the mentality the company wants to adopt for its US$2.6 billion (S$4 billion) Cepu oilfield development straddling the East Java-Central Java border.

But in the middle of an area marked by known terrorist hideouts and radical Islamic cleric Abu Bakar Bashir's Muslim boarding school, security will still be a serious issue for a not-always loveable company whose very size and stature could make it an inviting target.

ExxonMobil and its partner, the state-owned Pertamina oil company, got a reminder of that several weeks ago when police blocked 2,000 members of the violent Islamic Defenders Front, known by its Indonesian acronym FPI, from staging an anti-US protest at the site of Indonesia's biggest onshore oil discovery in four decades. The banner-waving demonstrators had travelled to the site from the former royal capital of Solo, 100km to the south-west. At least 500 of them had boarded trucks in the suburb of Ngruki, the site of Bashir's now-notorious boarding school where he is again expected to take up residence in June after serving a 30-month jail term for his involvement in the October 2002 Bali bombing.

The alleged former spiritual leader of the Jemaah Islamiah extremist group has already sought permission to establish a similar school in Bojonegoro, one of the two hardscrabble districts in East Java that stand to benefit the most from the oilfield when it goes into production in 2009-2010.

Cepu lies 40km west of Lamongan, the hometown of two of the condemned Bali bombers who may now be only weeks away from execution, and 100km north-west of where Malaysian bomb-maker Azahari bin Husin made his last stand earlier this year. Fellow fugitive Nordin Mohammad Top remains at large and is still believed to be in Java.

In what may be a sign of things to come for US corporations, radical groups have recently sought to cash in on nationalist sentiment stirred up over the government's decision to make ExxonMobil the operator of the field; and renewed controversy over Freeport McMoRan Copper & Gold's operations in Papua.

Indeed, it is now becoming apparent that Muslim extremists have begun making inroads in environmental groups once dominated by purely social activists. The head of Walhi, the main environmental group, is also a member of Hizbut Tahrir, a hardline Muslim group which emerged over the past year, and which has been famously described as being a 'conveyor belt for terrorists'. Although the group claims to be non-violent, the Walhi chairman took part in recent violent demonstrations outside the US embassy, wearing full Islamic robes.

ExxonMobil's most immediate and problematic task is negotiating the acquisition of land for 49 production wells, a central processing plant and a sulphur extraction facility in the main Banyu Urip oilfield, and the right-of-way for a 45km pipeline to a giant offshore storage vessel to be anchored off the northern seaport of Tuban - another possible terrorist target that will probably require naval protection. The eight wells drilled so far made four discoveries containing an estimated 600 million barrels of light sweet crude and 1.7 trillion cu ft of natural gas.

But executives say that exploration going on in concert with the development of the field could add to those reserves in an area that has been producing small amounts of oil since the turn of the last century. The gas will be a much-needed source of energy for Indonesia's domestic power generation.

With security clearly a concern, ExxonMobil feels its best protection is to integrate as much as possible into the local community.

As part of that plan, it is drawing concentric rings of influence around the project, including an inner ring that will initially encompass about 5,000 people living in 13 villages, and an outer ring that could extend as far as the East Java port city of Surabaya and south to Solo and Jogjakarta. More than 2,300 villages in Bojonegoro and Tuban are expected to be directly affected.

Unlike most areas in Java, the population in the project area itself is a varied mix of Muslims, Christians and animists. The company hopes this mix will help to lessen the influence of Islamic radicals.

Anxious to breed religious tolerance, the company plans to provide Internet access and mobile libraries for parents and children so that they can learn about what is going on around them, and to combat extremism.

But at this point anyway, religious issues are taking a back seat to economic imperatives in one of the country's poorest regions with a population density of 510 people per sq km.

Indeed, the biggest challenge of the developers will be to meet the high expectations of local residents, who have already been agitating for early benefits.

About 2,000 Indonesians are expected to be directly employed by the joint venture, but perhaps four or five times that number will also find jobs in a myriad of support services.

ExxonMobil is working on a census to enable it to differentiate between those living in the area and an expected influx of workers from other parts of the country looking for jobs.

It is taking a lesson from the often not-so-happy experience of other natural resources companies in Indonesia - and is also drawing on its own track record in Aceh.

Some of the senior Indonesians in ExxonMobil were among the eight intakes of workers hired from villages around the Aceh gasfields in the early 1970s, when that operation first got off the ground.

Then there is the recognised computer expert in the company's Jakarta office - he once sold cigarettes to the men working on the rigs. While education, health and economic development will be the main pillars of the community development plan, local government capacity-building is considered equally important in getting the local populace on ExxonMobil's side.

Miners and oilmen working for large, well-heeled Western corporations know from experience that if the government gets something wrong, it quickly becomes a company problem.

ExxonMobil has not always got things right itself. In Aceh, it discovered that some of its community projects gained traction, while others failed miserably for one reason or another.

As one of the world's most profitable companies, working on one of the most densely populated islands in the world, it will be under intense scrutiny from rural villagers and big city critics alike - particularly after fighting so hard to take the lead role. The impact on Cepu in the next 30 years is only now being fully understood.

'Cepu has only one hotel, so it's an area where true value can be added,' says a Western oilman involved in the project. 'The people coming in will have tremendous spending power. The income of the local people is not much more than US$1,000 per year per family. A foreigner can dump that in a week.'

The ripples will be felt elsewhere as well. For all the nationalist uproar over the choice of general manager, the face-saving joint operating agreement will give Pertamina the opportunity to learn from an oil giant that must find a field the size of Cepu every six months to maintain its global growth - and normally develops as many as five or six a year. Even its original Aceh gas discovery was the equivalent of two billion barrels.

In fact, despite the stubborn opposition of Pertamina's former president-director Widya Purnama and a small cliche of like-minded allies, there was a widespread feeling among many government officials that the state company was not up to the task after seeing it fall steadily behind its younger Malaysian counterpart, Petronas, in everything from managerial to technological skills.

Finances were a key consideration too. Cash-rich ExxonMobil does not have to go to the market to raise its half-share of the development cost.

Having rejected its prospective partner's offer to provide the balance because it was not willing to make concessions, Pertamina must now go out looking for a loan. It probably will not have much difficulty, but ExxonMobil's role in the project all the same is likely to give comfort to financiers.