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Pertamina

Pertamina

Jalan Medan Merdeka Timur Number 1 A
Jakarta 101110
Indonesia
Telephone: (21) 381-51114
Fax: (21) 384-3882
Web site: http://www.pertamina.com

State-Owned Company
Incorporated:
1945 as Perusahaan Tambang Minyak Negara Republik Indonesia
Sales: $19.4 billion (2001)
Employees: 24,000
NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 324110 Petroleum Refineries

Pertamina operates as a state-owned company that controls the oil and natural gas industry in Indonesia. The companys activities include exploration, refining, production, transportation, and marketing. Indonesias turbulent economy and its political and civil unrest over the past several years have forced many changes in Pertamina. The countrys Oil and Gas Law 22, passed in 2001, includes provisions that will eventually turn the giant oil concern into a limited-liability company. Law 22 also intends to break up Pertaminas monopoly over the Indonesian energy industry by encouraging foreign competition and investment.

Early History

Since the 17th century, when much of the Indonesian archipelago came under the control of The Netherlands and its Dutch East Indies colonial administration, the region has been renowned for its vast natural resources, especially tin. Until the middle part of the 20th century, however, the countrys oil deposits remained mostly untapped. History records that Indonesians in the Sumatra Strait successfully defeated attacking forces from the Portuguese armada by hurling oil-soaked fire balls at the foreigners and burning their vessels.

Dutch seafarers avoided a similar fate by arming their battleships with cannons to repel the fireballs from a safe distance. With Indonesia a colony, the Dutch soon began tapping the countrys oil reserves for their own gain.

In 1887, Adrian Stoop, a former engineer with Zijlker, a Dutch oil company, set up his own business in Surabaya. Having found oil deposits, he established a refinery at Wonokromo in 1890, and expanded with another one in Cepu, Central Java, in 1894. Two larger oil companies, Koninklijke Nederlandsche Petroleum Maatschappij and Shell Transport and Trading Company, were quick to assume the advantage over Stoop by setting up, in 1902, a joint venture in oil shipping and marketing operations in Indonesia. In 1907 the two Dutch concerns, impressed with each others progress, merged into one group, which eventually became known as Royal Dutch/Shell, or Shell for short.

Other oil companies attempted at the turn of the century to establish a foothold in Indonesian oil mining. Most failed or were swallowed up, in part or whole, by Royal Dutch/Shell. For example, a number of foreign companies looking to explore in the Irian Jaya province in 1935 set up a joint company called Nederlandsche Nieuw Guinea Petroleum Maatschappij, with 40 percent of its shares held by Shell.

During the interwar years Indonesia had become the Far Easts largest oil producer, and the prospect of the countrys falling under Japanese control after the bombing of Pearl Harbor dismayed Indonesias Dutch rulers. When the Dutch government realized Indonesia could no longer withstand a Japanese advance, many of the countrys oil installations and facilities were destroyed. Before the Dutch army and the oil companies could complete the scuttling operation, the Japanese forces occupied a fair number of the remaining installations, putting them under the control of the invaders regional military commander.

Nationalizing the Oil Industry in the Mid-1940s

With the end of the war in 1945 and the proclaiming of Indonesias independence in August of that year, to become fully effective in 1949, that countrys anticolonial independence fighters, resuming the fight against Dutch rule, quickly seized on what remaining oil fields and installations they could secure from the retreating Japanese. Recognizing this popular ferment, in September 1945 the Dutch administration included in the countrys new constitution Article 33, which outlined the peoples desire to develop their oil and gas sectors. In practical terms, Article 33 meant the establishment that month of a national oil company, Perusahaan Tambang Minyak Negara Republik Indonesia (PTMN-RI). In a wider sense, Indonesia started out on the road to reducing its dependence on foreign oil companies to tap its energy deposits and to managing the industry for its own gain.

At the same time, independence fighters in south Sumatra retained control of regional oil facilities and set up their own company, Perusahaan Minyak Republik Indonesia (PERMIRI). Elsewhere in Java, another oil company, Perusahaan Tambang Minyak Republik Indonesia (PTMN), held jurisdiction.

This postwar period was debilitating for Indonesias oil industry, as rival independence movements used installations and facilities to gain advantage over the Dutch colonial rulers. For a time PERMIRI was able to run the Dutch blockade and sell oil to Singapore. By 1948, however, Dutch forces had ended exports of PERMIRIs supplies. In the same year, Dutch forces ended exploration at oil fields controlled by PTMN in Central Java.

After Indonesias full independence in 1949, the country had to contend with foreign oil companies still tapping its most valuable oil and gas reserves. Royal Dutch/Shell and Standard-Vacuum Oil Company (Stanvac), two large foreign oil groups operating in the region, still had concessions to continue work in Indonesia until 1951. That year, Indonesias house of representatives ordered the government to set up a state committee for mining affairs and to postpone granting concessions and exploration permits to foreign oil companies.

This was a modest first attempt by Indonesia to tap its oil and gas reserves for its sole gain. Plans were slow in developing. In 1954, the government forged a four-year agreement with Stanvac to give Indonesia greater input in how its oil industry was developed.

The Stanvac agreement expired in 1960, when the Indonesian government enacted Law 44, concerning oil and gas mining. Exploration and mining were now to be carried out only by the government, under the management of a state company. Hereafter, foreign companies such as Shell and Stanvac were no longer to be regarded as concession holders but as contractors, and had to renegotiate their agreements with the Indonesian government accordingly.

Again, plans were slow to bear fruit. Indonesia knew that it lacked the massive funds needed to explore and produce oil on its own. Negotiations, over which the United States took great interest and an eventual lead, were concluded in June 1963. The resulting agreement held that Shell, Stanvac, and Caltex, the major foreign oil companies operating in Indonesia, were to become contractors of PERMIGAN, PERMINA, and PERTAMIN, respectively. The foreigners would retain management of the oil installations, but 60 percent of profits from all activities would go to Indonesia.

Beyond profits, however, the Indonesian government was intent on maintaining general managerial responsibility for all oil exploring and drilling installations in the country. General Ibnu Sutowo, president-director of Pertamina, explained: This does not mean that we insist on making every decision, but we do insist on making any decision we find necessary.

Although Indonesia remained, in large part, dependent on foreign oil companies, it had made an attempt to obtain crude oil on its own. In 1962, Indonesia joined the Organization of Petroleum Exporting Countries (OPEC), although at this time the oil-producing cartel was hardly the economic force it was to become during the 1970s.

The countrys first state-owned oil company, Exploitasi Tambang Minyak Sumatra Utara (PT ETMSU), had been set up in 1957. After changing its name soon after to PT PERMINA, Indonesia made its first crude oil export on March 24, 1958, when the tanker Shozmi Mam carried 1,700 tons, worth about $30,000, to a foreign buyer.

Slowly, Indonesia established the infrastructure to produce its own crude oil on a lasting basis. PERMINA Oil Academy enrolled its first group of engineering students in 1962. In the same year, PERMINA purchased one aircraft for its operations anda year latersecured approval from the government for the purchase of oceangoing tankers for crude oil exports.

By 1965, PERMINA had successfully drilled a total of nine oil fields, the resulting wells producing 21,000 barrels of oil per day. This progress instilled the Indonesian government with enough confidence to secure agreement from Shell to purchase all of Shells assets for around $10 million over a period of five years after 1966.

The Emergence of Pertamina in the Late 1960s

It was not until 1971 that PN Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) was established by the Indonesian government as the only national oil company that could extract oil and natural gas throughout the country. The state company had been formed earlier in 1968, again by government legislation, after the merger of PN PERTAMIN and PT PERMINA, the existing state oil companies. Under the 1971 legislation, Pertamina was to be run by a board of directors, headed by a president director, and five other directors. The state-owned company, headquartered in Jakarta, was to operate in close cooperation with the Indonesian government.

Company Perspectives:

Pertamina strives to be an excellent, progressive, and respected leading company. Our mission is to carry out business in energy and petrochemicals; to contribute added value for the shareholders, clients, workers, and the society and to support national economic growth; and to be a professionally managed, competitive company based on excellent values.

Pertamina needed the assistance of foreign oil companies. Under production agreements, the foreign contractors were to receive 40 percent of profits from exploration and drilling, while the Indonesian government carved out 60 percent of all gains. This all changed, however, in 1973 when the oil barrel price began to increase sharply. Pertamina renegotiated in 1974 complex agreements that stipulated that when the price of a barrel of crude oil climbed above a recognized base price, the incremental rise would be shared between the government and the contractor at a split of between 8515 and 955 percent.

The Wests growing thirst for energy supplies at this time gave tremendous impetus to the growth of Indonesias LNGliquefied natural gasindustry. The beginnings of LNG exploration dated back to October 24, 1971, when Bob Graves, exploration manager for Mobil Oil Indonesia, completed a drill-stem test on a wildcat well in the Arun oil field in North Sumatra. Graves had already drilled 14 holes in the field, an area of rice paddies, fish ponds, and coconut trees, but had found nothing. The 15th drill-stem test, Arun A-l, was successful. Alex Massad, Mobil Oils exploration and production chief in New York, proposed further drilling in the area for natural gas, at a cost of 400,000. The directors at Pertamina recognized the potential for profits from Arun-1. The successful drilling of Arun-2 and Arun-3 in early 1972 confirmed the presence of large LNG reserves.

Mobil Oil was not alone in spotting Indonesias rich LNG deposits. In 1971, Huffco, a Texas-based oil company drilling in palm swamps near the coast in east Kalimantan, drove a drill down the Badak-1 well site. Badak-1 produced a major gas discovery for Huffco.

On the strength of the Arun and Badak finds, Pertamina established a LNG unit, headed by Bambang Bramono, head of foreign gas marketing. The unit oversaw Mobil and Huffco development of their LNG finds. It soon became clear that Japan was to be Pertaminas main customer for natural gas.

The Indonesians 50-year experience in the production of crude oil, and the political and economic machinations surrounding such endeavors, enabled them to gain the best advantage from LNG development. Pertamina extracted agreements from Mobil and Huffco that they would produce the natural gas, but that the Indonesian company would then sell it to foreign purchasers. All negotiations with prospective Japanese buyers, beginning in 1973, were headed by Indra Kartasamita, who worked in the companys sales and transportation division.

Contracts with foreign buyers followed, beginning in late 1972. Japanese electric utilities, including Kansai Electric Power Company, Chubu Electric Power Company, and Kyushu Electric Power Company, were among the first customers. Pertamina then signed a 20-year contract with Pacific Lighting Corporation, the parent of a California gas company. In 1979, Pertamina signed a five-year contract with Mitsubishi Oil Co., Ltd. of Japan, to double the latters purchase of crude oil.

Pertaminas LNG operations were headed by General Ibnu Sutowo, who was directly responsible to Indonesian President Soeharto. Soedarno Martosewojo, a Pertamina director and chemical engineer, was appointed as LNG coordinator.

Once the taps that extracted LNG from deep below the Indonesian shorelines were switched on, production climbed steadily. It reached 312.6 billion standard cubic feet in 1976, compared with 150.8 billion in 1972. The LNG plant in Arun was fully completed in mid-1978, while the plant at Badak came onstream in July 1977, commencing production a month later. In 1990, the annual production from the two plants was 15.7 million tons and was exported almost entirely to Japanese users. There were also modest exports of LNG to South Korean users. Also in the pipeline was the export of 1.5 million tons of LNG to Taiwan each year, a market that was expected to open up in late 1990. This was agreed between the Chinese Petroleum Corporation and Pertamina in 1986. Then in 1995 the two companies signed a $6 billion deal, which would extend Pertaminas LNG export contract until 2018.

The rise in the price of oil following Iraqs invasion of Kuwait in August 1990 was expected to rejuvenate exploration and drilling in Indonesia. Over the five years since 1986, when the price of oil slipped to below $20 a barrel and remained static for a time, so too did the number of installations in Indonesia. During this period, 693 exploratory wells were drilled, comprising 385 wildcats and 308 delineation wells. These drillings saw a 35 percent success rate.

By mid-1989, the country had 78 onshore and offshore installations, covering 55 production contracts with foreign oil companies, and 18 joint operating arrangement areas. Of these installations, 29 were producing oil, while 49 were still in the exploration stage.

Key Dates:

1945:
Article 33 of Indonesias constitution establishes its first national oil company.
1960:
The Indonesian government enacts Law 44 stating that exploration and mining are now to be carried out only by a state-owned company.
1968:
Pertamina is formed by the merger of existing state oil companies.
1971:
Pertamina becomes the only national oil company that can extract oil and natural gas throughout Indonesia.
1993:
The company launches a restructuring program to cut costs.
1998:
Indonesias President Soeharto is forced to step down during a state of economic crisis and civil unrest.
2001:
Law 22 is passed, which will end Pertaminas oil and gas monopoly.

After its success in developing Indonesias LNG deposits, Pertamina was eager to explore and tap geothermal energy sources around the country. In its early stages of development, steam production began at the first geothermal field in Kamojang, West Java. New fields set to begin production included those in Dieng plateau in Central Java, Mount Salak and Drajat in West Java, and Lahendong in North Sulawesi. Aside from expanding its crude oil production, LNG production enabled Indonesia to develop new markets in domestic gas uses, in fertilizer and petrochemical plants, refineries, and electric power generation.

Corruption and Change: The 1990s and Beyond

In 1993 and 1994, Pertamina launched a restructuring program designed to cut costs and increase efficiency. During the course of its efforts, however, the company became entangled in one of Indonesias worst economic crises. By the mid-1990s, Indonesia was experiencing low employment, price increases, food shortages, and major devaluation of its currency, the rupiah. In fact, by December 1997, the rupiah had been devalued by nearly 40 percent over the course of one year. As the countrys banks failed, the Indonesian government looked to the International Monetary Fund (IMF) for a bailout. The IMF agreed, offering approximately $23 billion in funds to restore the regions financial health.

Meanwhile, Soehartos government was under attack for its corrupt policies. The presidents 32-year reign came to an end in 1998 when he was forced to step down. His vice-president, B.J. Habibie, took over for a short while before Abdurrahman Wahid gained control in 1999. Wahid, nearly blind and suffering from two strokes, was eventually impeached in July 2001. Megawati Sukarnoputri was named his successor.

During this government shakeout, Pertamina experienced change of its own. While Soeharto had been in power, Pertamina had awarded 159 contracts to companies linked to Soehartos family and friends. The Oil and Gas Journal claimed in July 1999 that an independent report issued by Pricewaterhouse Coopers on July 9 revealed that graft and efficiency cost Pertamina about $6.1 billion in lost revenue during 1997 and 1998. The funds were lost due to embezzlement, illegal commissions, mark-ups on procurement contracts, and sheer inefficiency. Baihaki Hakim, a U.S. oil executive, was appointed CEO in 2000 and immediately began to overhaul Pertaminas corrupt business practices. By 2001, Hakim had issued the companys first financial report to the public, fired Soeharto cronies, cut jobs, and slashed more than $1 billion in costs. The new leader also changed the companys bidding process, making it more competitive, and began to file corruption charges against those who had defrauded Pertamina in the past.

Under President Megawati, the Indonesian government worked diligently to restore the countrys financial health as well as its political stability. As part of its reform, Indonesia introduced its Oil and Gas Law 22, which would end Pertaminas monopoly over the countrys energy resources and foster a competitive environment. Under the terms of Law 22, Pertaminas legal status was expected to changeturning it into a limited liability companyduring 2003 in preparation for its eventual privatization in 2005. The company also would be forced to focus on its core operations and divest nonrelated assets and subsidiaries. The upcoming elections in 2004 threatened to overshadow the restructuring of the oil and gas sector, however, leaving Pertaminas future up in the air.

While Pertaminas role in the Indonesian oil and gas sector remained uncertain, the company continued with its internal strategy, which focused company efforts on becoming a global oil and gas company able to compete with the leading companies in the world. During 2001, Pertamina inked a deal with PetronasMalaysias state-owned oil companythat was worth approximately $3 billion. Under the terms of the deal, Pertamina would deliver LNG from the West Natuna gas field in the South China Sea to Malaysia. The company also kept its exploration business at the forefront of operationsit hoped to discover 118 million barrels of new oil reserves and 3.6 trillion cubic feet of natural gas reserves during 2003.

Principal Competitors

Petroliam Nasional Berhad; Singapore Petroleum Company Ltd.; Woodside Petroleum Ltd.

Further Reading

Abdullah, Ashraf, First Pipeline Delivery of Natural Gas Launched, Business Times Malaysia, August 9, 2002, p. 5.

Bartlett, Anderson G., Pertamina: Indonesian National Oil, Jakarta: Amerasian Ltd., 1972.

Big Changes Loom for Pertamina, International Oil Daily, November 19, 2002.

Hands Across the Sea: The Story of Indonesian LNG, Jakarta: Pertamina, 1985.

Indonesia Considers Legislation That Would End Pertaminas 30-Year Petroleum Monopoly, Oil and Gas Journal, July 26, 1999, p. 27.

Indonesia: Graft Wont Just Vanish, Business Week, June 1, 1998.

Indonesias Pertamina Misses Key Deadline for Corporate Revamp, International Oil Daily, April 3, 2003.

Megawatis Short Honeymoon, Business Week, August 6, 2001.

Pertamina Eyes 118 Million Barrels of New Oil Reserves in 2003, Xinhua News Agency, February 11. 2003.

Pertamina: History and Development, Jakarta: Pertamina, 1979.

Saragosa, Manuela, Pertamina Signs Dollars 6bn LNG Deal with Taiwan, Financial Times London, October 27, 1995.

Shari, Michael, Indonesias Lone Ranger, Business Week, April 16, 2001.

, Megawatis Tightrope, Business Week, March 10, 2003.

Etan Vlessing

update: Christina M. Stansell

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PERTAMINA

PERTAMINA

Jalan Merdeka Timur Number 1
Jalan Perwira 2-4-6 Jakarta
Indonesia
(021) 3031

State-Owned Company
Incorporated:
1945 as Perusahaan Tambang Minyak Negara Republik Indonesia

Besides agriculture, oil and natural gas are Indonesias most important assets. Oil production amounts to upward of 500 million barrels exported annually since 1986, contributing more than 40% of the states current income. The importance of oil production underlies the continuing importance of PERTAMINA, Indonesias state oil and gas mining company, for the nations economy.

Since the 17th century, when much of the Indonesian archipelago came under the control of the Netherlands and its Dutch East Indies colonial administration, the region has been renowned for its vast natural resources, especially tin. Until the middle part of the 20th century, however, the countrys oil deposits remained largely untapped. History records that Indonesians in the Sumatra Strait successfully defeated attacking forces from the Portuguese armada by hurling oil-soaked fire balls at the foreigners and burning their vessels.

Dutch seafarers avoided a similar fate by arming their battle ships with cannons to repel the fire balls from a safe distance. With Indonesia a colony, the Dutch soon began tapping the countrys oil reserves for their own gain.

In 1887, Adrian Stoop, a former engineer with Zijlker, a Dutch oil company, set up his own business in Surabaya. Having found oil deposits, he established a refinery at Wonokromo in 1890, and expanded with another one in Cepu, Central Java, in 1894. Two larger oil companies, Koninklijke Nederlandsche Petroleum Maatschappij and Shell Transport and Trading Company, were quick to assume the advantage over Stoop by setting up, in 1902, a joint venture in oil shipping and marketing operations in Indonesia. In 1907 the two Dutch concerns, impressed with each others progress, merged into one group, which eventually became known as Royal Dutch/ Shell, or Shell for short.

Other oil companies attempted at the turn of the century to establish a foothold in Indonesian oil mining. Most failed or were swallowed up, in part or whole, by Royal Dutch/Shell. For example, a number of foreign companies looking to explore in the Irian Jaya province in 1935 set up a joint company called Nederlandsche Nieuw Guinea Petroleum Maatschappij, 40% of it shares being held by Shell.

During the inter-war years Indonesia had become the Far Easts largest oil producer, and the prospect of the countrys falling under Japanese control after the bombing of Pearl Harbour dismayed Indonesias Dutch rulers. When the Dutch government realized Indonesia could no longer withstand a Japanese advance, many of the countrys oil installations and facilities were destroyed. Before the Dutch army and the oil companies could complete the scuttling operation, the Japanese forces occupied a fair number of the remaining installations, putting them under the control of the invaders regional military commander.

With the end of the war in 1945 and the proclaiming of Indonesias independence in August of that year, to become fully effective in 1949, that countrys anti-colonial independence fighters, resuming the fight against Dutch rule, quickly seized on what remaining oil fields and installations they could secure from the retreating Japanese. Recognizing this popular ferment, in September 1945 the Dutch administration included in the countrys new constitution Article 33, which outlined the peoples desire to develop their oil and gas sectors. In practical terms, Article 33 meant the establishment that month of a national oil company, Perusahaan Tambang Minyak Negara Republik Indonesia (PTMN-RI). In a wider sense, Indonesia started out on the road to reducing its dependence on foreign oil companies to tap its energy deposits and to managing the industry for its own gain.

At the same time, independence fighters in south Sumatra retained control of regional oil facilities and set up their own company, Perusahaan Minyak Republik Indonesia (PERMIRI). Elsewhere in Java, another oil company, Perusahaan Tambang Minyak Republik Indonesia (PTMN), held jurisdiction.

This postwar period was, debilitating for Indonesias oil industry, as rival independence movements used installations and facilities to gain advantage over the Dutch colonial rulers. For a time PERMIRI was able to run the Dutch blockade and sell oil to Singapore. By 1948, however, Dutch forces had ended exports of PERMIRIs supplies. In the same year, Dutch forces ended exploration at oil fields controlled by PTMN in Central Java.

After Indonesias full independence in 1949, the country had to contend with foreign oil companies still tapping its most valuable oil and gas reserves. Royal Dutch/Shell and Standard-Vacuum Oil Company (Stanvac), two large foreign oil groups operating in the region, still had concessions to continue work in Indonesia until 1951. That year, Indonesias house of representatives ordered the government to set up a state committee for mining affairs and to postpone granting concessions and exploration permits to foreign oil companies.

This was a modest first attempt by Indonesia to tap its oil and gas reserves for its sole gain. Plans were slow in developing. In 1954, the government forged a four-year agreement with Stanvac to give Indonesia greater input in how its oil industry was developed.

The Stanvac agreement expired in 1960, when the Indonesian government enacted Law 44, concerning oil and gas mining. Exploration and mining were now to be carried out only by the government, under the management of a state company. Hereafter, foreign companies such as Shell and Stanvac were no longer to be regarded as concession holders but as contractors, and had to renegotiate their agreements with the Indonesian government accordingly.

Again, plans were slow to bear fruit. Indonesia knew that it lacked the massive funds needed to explore and produce oil on its own. Negotiations, over which the United States took great interest and an eventual lead, were concluded in June 1963. The resulting agreement held that Shell, Stanvac, and Caltex, the major foreign oil companies operating in Indonesia, were to become contractors of PERMIGAN, PERMINA, and PER-TAMIN respectively. The foreigners would retain management of the oil installations, but 60% of profits from all activities would go to Indonesia.

Beyond profits, however, the Indonesian government was intent on maintaining general managerial responsiblity for all oil exploring and drilling installations in the country. General Ibnu Sutowo, president-director of PERTAMINA, explained: This does not mean that we insist on making every decision, but we do insist on making any decision we find necessary.

Although Indonesia remained largely dependent on foreign oil companies, it had made an attempt to obtain crude oil on its own. In 1962, Indonesia joined the Organization of Petroleum Exporting Countries (OPEC), although at this time the oil producing cartel was hardly the economic force it was to become during the 1970s.

The countrys first state-owned oil company, Exploitasi Tambang Minyak Sumatra Utara (PT ETMSU), had been set up in 1957. After changing its name soon after to PT PERMINA, Indonesia made its first crude oil export on March 24, 1958, when the tanker Shozjni Mam carried 1,700 tons, worth about US$30,000, to a foreign buyer.

Slowly, Indonesia established the infrastructure to produce its own crude oil on a lasting basis. PERMINA Oil Academy enrolled its first group of engineering students in 1962. In the same year, PERMINA purchased one aircraft for its operations anda year latersecured approval from the government for the purchase of ocean-going tankers for crude oil exports.

By 1965, PERMINA had successfully drilled a total of nine oil fields, the resulting wells producing 21,000 barrels of oil per day. This progress instilled the Indonesian government with enough confidence to secure agreement from Shell to purchase all of Shells assets for around US$10 million over a period of five years after 1966.

It was not until 1971 that PN Pertambangan Minyak Dan Gas Bumi Negara (PERTAMINA) was established by the Indonesian government as the only national oil company which could extract oil and natural gas throughout the country. The state company had been formed earlier in 1968, again by government legislation, after the merger of PN PERTAMIN and PT PERMINA, the existing state oil companies. Under the 1971 legislation, PERTAMINA was to be run by a board of directors, headed by a president director, and five other directors. The state-owned company, headquartered in Jakarta, was to operate in close cooperation with the Indonesian government.

PERTAMINA needed the assistance of foreign oil companies. Under production agreements, the foreign contractors were to receive 40% of profits from exploration and drilling, while the Indonesian government carved out 60% of all gains. This all changed, however, in 1973 when the oil barrel price began to increase sharply. PERTAMINA renegotiated in 1974 complex agreements which stipulated that when the price of a barrel of crude oil climbed above a recognized base price, the incremental rise would be shared between the government and the contractor at a split of between 85-15 and 95-05%.

The Wests growing thirst for energy supplies at this time gave tremendous impetus to the growth of Indonesias LNG liquefied natural gasindustry.

The beginnings of LNG exploration dated back to October 24, 1971, when Bob Graves, exploration manager for Mobil Oil Indonesia, completed a drill-stem test on a wildcat well in the Arun oil field in North Sumatra. Graves had already drilled 14 holes in the field, an area of rice paddies, fish ponds, and coconut trees, but had found nothing. The 15th drill-stem test, Arun A-l, was successful. Alex Massad, Mobil Oils exploration and production chief in New York, proposed further drilling in the area for natural gas, at a cost of US$400,000.

The directors at PERTAMINA recognized the potential for profits from Arun-1. The successful drilling of Arun-2 and Arun-3 in early 1972 confirmed the presence of large LNG reserves.

Mobil Oil was not alone in spotting Indonesias rich LNG deposits. In 1971, Huffco, a Texas-based oil company drilling in palm swamps near the coast in east Kalimantan, drove a drill down the Badak-1 well site. Badak-1 produced a major gas discovery for Huffco.

On the strength of the Arun and Badak finds, PERTAMINA established a LNG unit, headed by Bambang Bramono, head of foreign gas marketing. The unit oversaw Mobil and Huffco development of their LNG finds. It soon became clear that Japan was to be PERTAMINAs main customer for natural gas.

The Indonesians 50-year experience in the production of crude oil, and the political and economic machinations surrounding such endeavors, enabled them to gain the best advantage from LNG development. PERTAMINA extracted agreements from Mobil and Huffco that they would produce the natural gas, but that the Indonesian company would then sell it to foreign purchasers. All negotiations with prospective Japanese buyers, beginning in 1973, were headed by Indra Kartasamita, who worked in the companys sales and transportation division.

Contracts with foreign buyers followed, beginning in late 1972. Japanese electric utilities, including Kansai Electric Power Company, Chubu Electric Power Company, and Kyushu Electric Power Company, were among the first customers. PERTAMINA then signed a 20-year contract with Pacific Lighting Corporation, the parent of a California gas company. In 1979, PERTAMINA signed a five-year contract with Mitsubishi Oil Co., Ltd. of Japan, to double the latters purchase of crude oil.

PERTAMINAs LNG operations were headed by General Ibnu Sutowo, who was directly responsible to Indonesian president Soeharto. Soedarno Martosewojo, a PERTAMINA director and chemical engineer, was appointed as LNG coordinator.

Once the taps which extracted LNG from deep below the Indonesian shorelines were switched on, production climbed steadily. It reached 312.6 billion standard cubic feet in 1976, compared with 150.8 billion in 1972.

The LNG plant in Arun was fully completed in mid-1978, while the plant at Badak came onstream in July 1977, commencing production a month later. In 1990, the annual production from the two plants was 15.7 million tons and was exported almost entirely to Japanese users. There were also modest exports of LNG to South Korean users.

Also in the pipeline was the export of 1.5 million tons of LNG to Taiwan each year, a market which was expected to open up in late 1990. This was agreed between the Chinese Petroleum Corporation and PERTAMINA in 1986.

The rise in the price of oil following Iraqs invasion of Kuwait in August 1990 was expected to rejuvenate exploration and drilling in Indonesia. Over the five years since 1986, when the price of oil slipped to below US$20 a barrel and remained static for a time, so too did the number of installations in Indonesia. During this period, 693 exploratory wells were drilled, comprising 385 wildcats and 308 delineation wells. These drillings saw a 35% success rate.

By mid-1989, the country had 78 onshore and offshore installations, covering 55 production contracts with foreign oil companies, and 18 joint operating arrangement areas. Of these installations, 29 were producing oil, while 49 were still in the exploration stage.

After its success in developing Indonesias LNG deposits, PERTAMINA has been eager to explore and tap geothermal energy sources around the country. In its early stages of development, steam production has already begun at the first geothermal field in Kamojang, West Java. New fields set to begin production include those in Dieng plateau in Central Java, Mount Salak and Drajat in West Java, and Lahendong in North Sulawesi. Besides expanding its crude oil production, LNG production has enabled Indonesia to develop new markets in domestic gas uses, in fertilizer and petrochemical plants, refineries, and electric power generation.

PERTAMINA remains of key importance to the Indonesian economy. The rise in the price of oil at the beginning of the 1990s augurs well for its immediate future.

Principal Subsidiaries

PERTAMINA North Sumatra; PERTAMINA South Sumatra; PERTAMINA Kalimantan.

Further Reading

Bartlett, Anderson G., Pertamina: Indonesian National Oil, Jakarta, Amerasian Ltd., 1972; Pertamina: History and Development, Jakarta, PERTAMINA, 1979; Hands Across the Sea: The Story of Indonesian LNG, Jakarta, PERTAMINA, 1985.

Etan Vlessing

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  • APA

"PERTAMINA." International Directory of Company Histories. . Encyclopedia.com. 22 Nov. 2017 <http://www.encyclopedia.com>.

"PERTAMINA." International Directory of Company Histories. . Encyclopedia.com. (November 22, 2017). http://www.encyclopedia.com/books/politics-and-business-magazines/pertamina-0

"PERTAMINA." International Directory of Company Histories. . Retrieved November 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/pertamina-0