(EnergyAsia, June 26 2012, Tuesday) — In its search for energy security, Indonesia is looking half way across the globe to another oil-producing country that shares its reputation for making unpredictable policies based on a mix of populism and resource nationalism.
Last week, Pertamina, the Indonesian state oil and gas monopoly, announced that it has agreed to pay US$725 million for the Venezuelan assets of New York-listed Harvest Natural Resources.
The move surprised most industry watchers, especially many inside Indonesia, as it has been struggling to attract investors to exploit the country’s own large reserves of untapped hydrocarbons. Pertamina has litle experience working abroad, especially in an aggressively nationalistic country like Venezuela which has been reclaiming assets and resources from Western companies.
While Indonesia will be an addition to the list of Asian countries being courted by the government of President Hugo Chavez, Pertamina lacks the financial muscles, technical know-how and organisational capabilities of competing investors from China, Japan and South Korea.
Pertamina does not have the depth of professional management and technical expertise, and will likely struggle in a new environment that is largely driven by domestic politics and the dictates of the country’s President.
The company, which has a tarnished record of corruption and waste, has justified its decision to expand abroad on the grounds that it needs to offset the rapid decline in Indonesia’s domestic oil reserves and production. Under Pertamina’s management, Indonesia became a net oil importer in 2004 as its oil production declined since peaking in the late 1970s while consumption continued a steady rise.
Pertamina believes it will be accorded favourable treatment in its cooperation with Venezuela’s PDVSA as both are national oil companies with “the same background, history and vision.”
Critics said the Indonesian government should focus on reforming its upstream sector to attract more investments to boost exploration and production activities. Instead, it will open the door for further mismanagement by letting Pertamina acquire Harvest’s effective 32% in Petrodelta, a joint venture with Venezuela’s state oil company, PDVSA.
According to BP’s latest Statistical Review of World Energy, Indonesia’s proven oil reserves have fallen by nearly a third from 5.9 billion barrels in 1991 to just four billion barrels last year.
The Indonesian Petroleum Association and foreign companies have been lobbying the government for better incentives to undertake exploration in new and riskier frontier areas including deepwater fields, but to no avail