Posted by: Jaring | February 13, 2009

Earliest days of Petroleum Industry in Indonesia

Indonesia is in an equitorial location, spanning 15 degrees above and below the equator, with the Indian Ocean flowing into the archipelago from the west and the Pacific Ocean from the east. Indonesia is a very huge country, it has more than 17 thousand islands which make it as the world’s largest archipelagic state. Indonesia has population of around 240 million people. Its area is approximately 1.9 million square kilometres which streches 3,200 miles from east to west. In addition of oil and gas, coal, gold, nickel, copper, and many other natural resources are found in Indonesia.

History of petroleum in Indonesia began with the first drilling activity which was undertaken in East Java by a Dutch Plantation Manager. Indonesia’s petroleum history can be grouped into 4 (four) stages, those are The Pre-war phase, The War Years, The Early Post War Period and The Post – present period. This essay will focus on the earliest stage, however the next stages also will described briefly.

First phase of petroleum history in Indonesia is started from 1884 when the first drilling for oil was commenced. It is limited until The War Years, around 1942 up to 1945. Although first drilling activity is done in East Java, first commercial oil was produced in North Sumatra in 1885. In 1884, A. J. Zijlker (the Dutch manager of the East Sumatra Tobacco Company) began drilling at Telaga Tiga, the most accessible of the oil pools at the concession. Previously, he was able to secure a concession to the oil-bearing-land (officially named Telaga Said) from the Sultan of Langkat (Bee, 1982). The first well gave some promising results but the second well drilled at Telaga Tunggal in 1885 was an immediate success, producing oil in commercial quantities at a depth of only 121 m. This discovery provided great stimulus to exploration and drilling, new fields then were discovered, such as Kruka, East Java (1887), Kampong Minyak, South Sumatra (1896), Sumpal, South Sumatra (1897), Sanga-sanga, East Kalimantan (1897), Perlak, North Sumatra (1900) and Ledok, East Java (1901) (Bee, 1982).

With interest in the region’s oil increasing rapidly, the Royal Dutch Company was formed in 1890 for the production and refining of oil. Another early company was Shell Transport and Trading which found oil in East Borneo and set up a small refinery in Balikpapan in 1894. In 1907, the two companies merged into the Royal Dutch/Shell group of companies. At that time, The Netherlands East Indies had become the major supplier of oil for the lamps of Asia (Barnes, 1995).

In the 1907, the first general mining legislation was introduced. All mineral rights were invested in the colonial government which was authorized to grant full ownership rights to foreign company. Oil concessions were normally valid for 40 years with a maximum government revenue entitlement of 20% of net profits. Later, in 1924, member of concessions had increased to 119, covering a total of 6,400 square kilometers. Total production had also increased to 62,000 barrels per day, of which 95 percent was produced by Royal Dutch (Barnes, 1995)

Preference in obtaining concession had been given to Dutch firms and overwhelmingly to Royal Dutch in an attempt to continue the Dutch monopoly over all country’s resources. However, US companies had also been interested in obtaining concession. Finally, after threats of counter action against Dutch companies in the United States, restriction were relaxed. Thus, Caltex and Stanvac were firmly established in Indonesia as producers and refiners well before the Second World War. In 1939, production of crude oil had reached 170,000 barrels per day and total refining capacity is approximately 180,000 barrels per day. Indonesia then dominated the oil industry in the Far East where over 75% of the crude oil produced came from Indonesian wells.

The Japanese government and military establishment had long been interested in obtaining control of Indonesian oil and other resources. Indonesian crude oil and refinery were seen as vital for the functioning of the Japanese war machine. This event ended the phase of Pre-war. The next step which is The War Years phase is initiated with invasion of the Japanese to Indonesia. Japanese invaded the Netherlands East Indies in January 1942. At the beginning of the war attempts were made by the Dutch to destroy most of the oil facilities to prevent them being used by the Japanese invaders. By the end of March 1942, the Japanese army had taken full control of the oil fields. Through the rest of war years they drastically exploited the existing oil reserves and refineries for their war effort with the aid of the few experienced Indonesians and Dutch prisoners. They also drilled the discovery well of the giant Minas oil field whose location had been prepared by Caltex in 1941. Overall, the Japanese were stay in full control of oil field in Indonesia until 1945.

The Japanese surrendered on August 15, 1945. From this time, the third phase is started. The Early Post-war period is within 1945 and 1966. Two days later after August 15, 1945, Indonesian leaders determined to free themselves from Dutch colonial rule, proclaimed independence for their country. Then, major oil companies (Stanvac, Caltex, Shell) returned to Indonesia. Shell was able to resume production in Tarakan, Kalimantan as early as 1946 (Barnes, 1995). Production increased steadily to reach more than 400,000 barrel per day in 1960 as Caltex developed a number of major new fields in Central Sumatra.

After proclaimed their independence, Indonesian government still had conflict with the Dutch. During the conflict, three worker oil companies were founded, in Java, South Sumatra and North Sumatra. One of these companies, Perusahaan Tambang Minjak Negara, is considered to be the first Indonesian oil company (Barnes, 1995). This company had already been formed in 1945 when the North Sumatran oil fields were transferred by Japanese occupation army to the Indonesian army. In 1957, when the army took over the management of the former Shell fields in North Sumatra, it appointed Dr. Ibnu Sutowo to establish a limited liability company to rehabilitate the oil industry and to export oil (Barnes, 1995).

In the beginning of The Post-Present period could be regarded as a watershed in the history of the Indonesian oil industry. However, in 1966, after thirteen oil companies signed production-sharing agreements, ushering a new era in the history of the petroleum industry of Indonesia. These companies mounted an intensive search for oil, concentrating their efforts on offshore area. For instance, ARCO, started drilling in the Arjuna Complex in the Java Sea in September 1968, and struck oil in February 1969 at a depth of 1400 m. This is the first offshore oil to be discovered, was a low-sulfur crude which tested at a flow rate of 2,600 barrels per day (Bee, 1982). After that, both offshore and onshore oil and gas industry developed significantly until present. Currently, there are 53 oil companies, both local and international, signed the production sharing contract with production expectation in 2009 is 960,220 barrels per day (BP Migas, 2009).


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