“You can’t discount a country of 250-260 million with the resources they have, and the opportunities they have. My money is on Indonesia.”

Chevron Indonesia’s outgoing managing director, Jeffrey E. Shellebarger, talks about investing in Indonesia and the future of the energy business

By A. Lin Neumann
Thursday, August 15, 2013

Jeffrey E. Shellebarger, the outgoing managing director of Chevron Indonesia, has traveled the world for the global US energy giant since beginning his career with the company as an exploration geologist in 1980.

Prior to his 2011 appointment as head of the company’s operations in Indonesia, he was the executive director of PT Chevron Pacific Indonesia starting in 2006, overseeing Chevron’s Sumatra operations in Riau Province. The country’s biggest crude oil producer and a major gas and geothermal player, Chevron is one of the largest and oldest foreign investors in Indonesia.

He was recently named president of Chevron North America Exploration and Production Company, a post he assumed effective Aug. 1, 2013.

During his time in Indonesia, Jeff says, he has been impressed by the country’s rapid growth, which he believes is here to stay. Compared to some other countries where he has worked, Indonesia has the institutions and the capabilities to sustain not just the energy industry’s growth but the country’s continuing expansion. Beyond that, he says, for him personally Indonesia became “home,” a feeling he attributes to the welcoming attitude of the country’s people and the stunning natural beauty of the islands.

He also says that there is plenty of future in Indonesia’s existing oil fields, where enhanced recovery techniques and new technology hold great promise. “People forget we have only produced less than half of the oil that is in the ground in these reservoirs and there is still much more to come in the next 35-40 years, given the right investment, management and technology. The big opportunity for Indonesia is to be heavily investing in these new technologies.”

AmCham Indonesia caught up with Jeff prior to his departure for an exclusive interview on the company’s plans here, the policy environment for the resource industry and Chevron’s long history. Below are excerpts:

 

AmCham: How do you see the state of play now in oil and gas in Indonesia? It has been a rocky couple of years on the policy front but standing back, how does Chevron see Indonesia?

Jeff Shellebarger: We take a long term view. We have been here almost 90 years now. In 1924, a team of geologists started marching through the jungle of Sumatra. They were shooting seismic surveys and doing field recon. They saw some things that looked attractive so they came back in the mid-30s and actually drilled the first well in Duri [Sumatra] and discovered the first oil here and started ramping up an exploration program in the early 40s.

We ramped up very quickly from the mid-50s to the 70s, from zero to a million barrels a day… [The company at the time was a partnership with Texaco, known as Caltex]. The million barrels a day stands out as one of the major milestones in Indonesia’s history as an energy producer. That’s when Indonesia moved into OPEC and the birth of the industry really took place here.

For 89 years we have been at the forefront of partnering with the government to develop this industry. We brought the investments; we brought the technology; we brought the initial infrastructure; we developed a strong partnership with Pertamina, the state-owned oil company. We really grew up together in this industry… That to me is the partnership we have had. We developed this industry together in Indonesia.

Riau was mostly jungle in the early days. So building schools, building roads – we needed all that for our operations but we did that in partnership with the government and the community and that really put Riau on the map… We have evolved from a foreign oil company to an Indonesian oil company. We have 6,000 employees, just about all Indonesians. We’ve got about 30,000 business partners and then there’s a huge trickle down beyond that in terms of economic growth and community development.

You employ a lot of people in a vast industry and you think of yourself as an Indonesian oil company. How is that message getting out in the current environment?

I think that in general the message is very well understood by our key stakeholders. It is very well understood in Jakarta and locally. They know who we are [in the regions], they know what kind of partner we are and they know we are committed to Indonesia… At the end of the day, the message is very well received in terms of the people who are familiar with what we do for this country and our local communities.

What are the near-term prospects for Chevron’s investments?

We’ve been very stable with a growing investment stream over the last few years. There are still a lot of opportunities to invest in the mature fields and so we have been growing that business the last few years. That is driven by opportunity, a stable global oil price and a relatively stable environment here in Indonesia.

Going forward, we are also in the process of working with the government on a final investment decision for the Indonesia Deep Water Development project. It’s Indonesia’s first deep water gas development project. We also have a large geothermal business and we are looking at additional investments to expand and grow that business and we are pretty active in frontier exploration in places like West Papua.

So in the near term we expect to continue to grow investments, assuming that stability still prevails and there is regulatory and legal certainty.

Do you mean political stability or contract stability?

Contract stability, with a clear legal and regulatory framework. We have production sharing contracts that are vehicles to bring investment into Indonesia. The industry has worked well for the last 25-30 years that we‘ve been under those contracts. We are not asking for anything more than what is in those contracts and as long as those are honored we can bring a lot of investment to the table.

Is deep water the future for oil and gas exploration in Indonesia? What is the time horizon for these fields?

Our deep water discoveries that we are looking at trying to put on stream were actually discovered in the mid-90s, so it has taken time to bring those to production. The future exploration plays are in the deep water Eastern Indonesia areas and in West Papua.

A lot of deep water fields were discovered in the 90s in Indonesia, however technology has had to develop globally to put those into production.

Tell us about the prospects for the government’s production targets and the climate for future investment.

The president has established the target of a million barrels a day by 2014, I believe. That doesn’t include the gas, which is on an oil equivalent basis. I think that is an achievable target for the industry but it requires a level of investment that is more than what is currently going into the system across all sectors.

To achieve a production target like that you need all the investment you can get. Indonesia is growing at six-and-a-half percent GDP. It needs increasing energy to feed that economic machine.

My discussion with people is about making the pie bigger. You need to make the investment pie larger and that’s what’s going to drive production in Indonesia and that’s what’s going to drive economic growth

So what do the international companies bring to the table? Fundamentally, what’s different about us is we bring risk investment to the table. In Indonesia, to maximize the recovery of the resources they have, you need some pretty expensive, high-risk exploration wells to be drilled.. You need to pilot leading edge technologies in term of doing additional recovery, these enhanced oil recovery processes… It takes pretty sophisticated science and it takes pretty expensive pilots to test those technologies before you can put them into a commercial program.

It takes deep pockets. All of this capital has to be invested up front and there is a high probability that you won’t get a return on that investment.

But companies like ours  that is what we do around the world. And if you are successful in that investment and you get the oil and gas flowing and you get a reasonable return, the government gets the revenue they need.

So a healthy environment is one where you have all the players at the table. You’ve got those high-risk investments, you’ve got a healthy supply of development capital for medium-size players and then you’ve got a set of small payers who are nimble and capable and they work on the mature end of that spectrum. You need them all at the table.

When you look at what Indonesia needs – it needs everybody at the table; it needs consistency in the terms and conditions of the contracts and stability in terms of the investment environment.

I am optimistic that the right decisions will be made. It’s a complex system but the people running this country understand what the right answers are.

Looking back personally, how have thing changed in Indonesia during your seven years here?

I have seen exponential growth in Indonesia in those seven years. I measure that by every time I drive through Pekanbaru… I look at the physical changes in roads, shopping, the growth of the middle class; it’s just off the charts. I mean it’s what you would expect from a country that has been growing at 6 percent GDP for the last seven years. There is no place in the world except China that has had that kind of growth.

Do you remain optimistic about Indonesia?

Yes I am very optimistic… Indonesia is a growing country, with a lot of opportunities for investments. I think there is some work to be done on the priorities for those investments But with that accomplished, those investments will come.

You can’t discount a country of 250-260 million with the resources they have, and the opportunities they have. My money is on Indonesia in the long term. Indonesia is trying to find the Indonesian way to do this and I think they will find it.

Finally, how are relations with the new regulator, SKKMIGAS?

It was an uncertain time last year [when the old regulator, BPMIGAS, was declared unconstitutional] but the government quickly committed that we are going to get reorganized and get it up and running. We got our work program and budget done in November like we always do, which shows they followed up with their commitment. We have a very strong working relationship with that organization.

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