“Historical Highlights” profiles individuals who have enjoyed substantial success in petroleum exploration. One such person is Don Todd, a geologist and small independent who virtually single-handedly initiated the process that opened offshore oil production in Indonesia.
Todd faced serious hurdles, both political and technical, but his boldness and persistence finally won the day.
‘Where the Oil Is!’
This epic story begins in the mid-1960s, with Todd consulting in Billings, Mont. At the time, he’d had his share of dry holes and a few modest successes and was just getting by.
But one day a friend’s comment changed his life: A landman buddy had read that, prior to World War II, Indonesia had produced 2 percent of the world’s oil.
“Dammit, Todd, that’s where the oil is!” the friend said. “Let’s go to Indonesia!”
Having just plugged a well and not knowing what else to do, the venturesome Todd said what the hell and began researching the Indonesian oil patch. (Note: oil was $3/bbl at the time, $1.20 in Indonesia).
Todd identified four areas of interest, with the western Java Sea being his number one pick, because:
- This area had a geologic edge – it lay on the projected trend of the depocenters of the Sumatran oil basins, which held some giant fields.
- It was logistically superior, being the closest to Jakarta, which had an international airport and major seaport.
- Offshore seismic would be far cheaper than onshore, where you would face jungles and rice paddies. And the Java Sea was shallow, calm and storm-free, making for benign operating conditions.
- Indonesia’s politics were unsettled, and offshore operations should be out of reach of disruptive elements.
This combination of factors seemed to offer good potential – even though it looked unlikely that the known onshore basin in West Java might continue offshore. According to “The Geology of Indonesia,” R.W. Van Bemmelen’s monumental study and the “bible” of the time, beginning just five miles offshore you would find only a thin veneer of sea-bottom mud covering shallow basement.
Todd could see no good reason why Van Bemmelen should be right – it didn’t make much sense to him that the Java Sea, a topographic low, would be superposed over a basement high. But he hoped to learn more in Jakarta.
Todd needed partners to fund his initial expenses, and he brought in two small independent companies to join his Independent Indonesian American Petroleum Company (IIAPCO). In June 1964 he made his first of many trips to Indonesia, which, under President Sukarno at the time, was very left-leaning and anti-business. His first job would be to check the government files for information about that adjacent onshore basin.
However, it was a classic Catch-22: Todd needed the files to help him decide which area to focus on, but the files would be closed until he had selected an area and signed a contract.
It was time to take a taxi out to the onshore area.
There he found a small shut-in field from pre-war days – and when he got someone to open a well it flowed some 40 BOPH of sweet, waxy, 40-degree oil. That proved the possibility of good source rocks near his offshore focus area but said little about reservoirs.
Later he would learn from a university geologist that the sands in this coastal area were dirty because of their proximity to the volcano belt. That might seem disappointing, but to the optimistic Todd it demonstrated a certain parallel to the Sumatran oil basins, where the proximal sands were dirty but which then cleaned up distally.
Back in Jakarta, Todd learned that Navy bathymetric charts were freely available. Using these he contoured the bottom of the Java Sea, finding in the western portion a large closed depression that he presciently identified as the surface expression of an actively subsiding basin.
Bingo! Now he could outline exactly his prospective area.
Meanwhile, he was the only oilman in town – there was simply no competition in sight!
On the one hand that was encouraging, for majors or large independents easily could have outbid him on bonus and work program.
But it also meant that he was bucking another bit of conventional wisdom: the idea that Indonesian politics were impossible to navigate. That may have been near-correct at that moment but would not remain so for long. After the Communists’ failed coup of September 1965, Sukarno was out and the government turned strongly pro-West.
Now was the right time for the oil companies to make their move, but Don Todd was still the only one there.
Under the new government, the head of the Petroleum Ministry was General Ibnu Sutowo, a strong and savvy, honest, pro-business administrator. Sutowo met with Todd immediately and outlined his concept of a new type of agreement; borrowing elements from some existing agreements (Refican, Asamera) and from an unsigned Sukarno-era contract proposal by Union Oil, Sutowo had developed what he called a “Production Sharing Contract” (PSC).
If Todd liked the concept, the general said, they could begin discussions in 30 minutes.
Things were starting out positively, in part because Sutowo had gotten favorable reports about Todd from some of Todd’s earlier contacts. The general loaned Todd a young lawyer and, working together, the small team readied a contract proposal in only six days.
IIAPCO was the first outside company seeking to invest after the abortive coup, and with Indonesia wanting to show the world that they were open for business, negotiations proceeded rapidly. The contract was signed in August 1966, with a 65/35 production split, no bonus, for an area about the size of Costa Rica.
In a quiet office in remote Indonesia, a major precedent had been set – the world’s first-enacted PSC was now in force.
Sutowo and Todd had put something in motion that before long would have global effects.
Let’s Make a Deal
The majors now started waking up and, fearing that production sharing and a 65/35 split (the previous standard being 50/50) might change their own game, they put heavy pressure on the U.S. embassy and the Indonesian government, trying to get the contract cancelled.
Although IIAPCO still needed presidium approval of their contract, this pressure only delayed final approval for a time.
To finance their work program, IIAPCO now had to turn their acreage to a larger company. They could afford a single seismic line, and they shot one across their block to prove the basin concept.
When this line showed a very nice sedimentary section, Sinclair Oil – unique amongst the majors – showed interest. Now the companies that had tried to kill the deal earlier by pressuring the government tried the same tactic on Sinclair. But you don’t take strategic advice from your competitors, and Sinclair went on to make the deal.
This opened the door, and within 18 months, 22 foreign companies had production sharing contracts – a nice testament to Todd’s efforts.
Early in 1969, the Sinclair-IIAPCO partnership had Indonesia’s first offshore discovery. Two formations proved productive – a lower deltaic unit and an upper group of shelf sands, with the discovery well flowing 2,600 BOPD. Follow-up discoveries were soon made and then, with the potential of the area becoming obvious, ARCO bought Sinclair, largely to acquire the Indonesian reserves.
Fruits of His Labor
But as it turned out, it was IIAPCO on its own, without Sinclair’s participation, that recorded Indonesia’s first commercial oil flow offshore. This occurred in a second contract area Todd had acquired, one located immediately north and west of the original and picked up two years later.
To explore and develop this block, Todd had changed his strategy. Having seen Sinclair’s early seismic work on the first block and knowing, therefore, that risk levels were much reduced, he wanted IIAPCO to retain a significant working interest as well as operatorship of the new block.
So instead of bringing in an oil company as the major money partner, he had merged IIAPCO with a NYSE-listed shipping company (Natomas), a company that would be happy to leave Todd in charge of oil affairs while they paid the bills.
As Todd had surmised, a portion of the new block proved to be on the fairway of productive basins, and a 7,700 BOPD discovery was soon in hand.
Todd and Sutowo both wanted to move quickly into production mode so, by using smaller production facilities fabricated in nearby Singapore, IIAPCO brought this block on stream in a very short period of time. This event was commemorated on-site with a ceremony attended not only by Todd, his wife and Sutowo, but also by the U.S. ambassador and by Suharto.
Sinclair, meanwhile, looking at a large multi-field development program, was proceeding at a major company’s more measured pace – logical, but not generating any president-to-president photo ops for company publications.
Total production from the two blocks is now over 3.5 billion barrels of low-sulfur, high gravity crude, along with additional significant quantities of C3 to C5 LPG. As well, C1/C2 is piped ashore for domestic use.
Don Todd went halfway around the world to deal with political turmoil and entrenched but incorrect geologic ideas. His success stands as an object lesson: One way to beat your competition is to have a vision that’s far enough off the beaten path that the others just don’t “get it.”
It’s called being a visionary.