Pat McDonough, the same guy that I roughnecked with and who was the lawyer land man, had an office across the hall from me, and he had just read the annual report—the production review in the Oil & Gas Journal that indicated that Indonesia pre-war had produced something like 2.5 percent of the world oil. He came in and he just said, “God damn it, Todd, let’s go to Indonesia.”
There were now many Billings consultants and we were all barely getting by. I knew I needed to move to a more active area but I didn’t have the money to move and start over. And I had just plugged a very favored, central Montana prospect.
I said okay and I began researching a part of the world that I hardly knew existed.
It really, really was why not?
My first trip was in June 1964. Sukarno was the father of the young Indonesian nation. It was then a very communist leaning country.
We met an American man raised in southeast Asia who had represented the American film industry in Indonesia for years.
With his guidance, plus just us knocking on doors, we were able to arrange top level meetings with the government and with Permegan which was the most leftist of the three state oil companies. But it was the company that was responsible for Java and the area that we were interested in. In my state—in my stateside research, I had chosen four areas of interest and had settled on the offshore northwest Java for a number of reasons.
Jakarta, which was then called Djakarta with a D, D-J-A-K-A-R-T-A, was the most accessible of all of the areas of interest with the only international air transport in a good seaport available. I also thought offshore would be politically quieter area to explore than onshore. The Java Sea has an average depth of 120 feet and is the quietest shelf sea in the whole world.
Seismic offshore would be much cheaper than seismic work onshore. I thought we might be able to obtain more geologic data while we were in Jakarta. But that proved fruitless.
We were not allowed any of the government files until we had a contract and I checked all of the bookstores and there wasn’t anything available that would help me. So I went to the Indonesian Navy and I was able to buy bathometric charts of the Java Sea; and being an old photo surface and drain person, I contoured the Java sea floor. I outlined what I considered, and has since been proven, a basin that has since produced over 3 billion barrels of oil.
There were a number of onshore seeps onshore Java.
And on one weekend outing, Pat and I came upon an old shut in field near Cirebon just onshore from my area of interest.
We found someone to open a well for us. He flowed 40 barrels of oil per hour, 40 gravity oil; and I knew we’d made a good choice of our area. But at the same time, a geologist at the University in Bandung cautioned me that our proximity to all the volcanic—where all the volcanism in the area might not be favorable for good porosity and permeability. And van Bem, who was the great Dutch geologist, and others had assumed the basement to be about five miles offshore Java; and of course, my contouring of the sea bottom indicated to me that it was much larger than that.
I contoured the bathometric, the old Dutch bathometric charts. I could even get drainage channels on the old surface because during the last glacial episode, it was all land.
And it outlined a beautiful basin, the Northwest Java Basin. And to me, I suppose if I hadn’t been schooled in all the photo geology and drainage studies and all that I had had to use for exploration in Montana, I probably never would’ve considered that.
It was just a nice contoured basin. It—the maximum depth of the Java Sea is 180 feet. It averages 120 feet. And I wished I—I don’t have it anymore but I wish I had my original contours of the Java Sea. And then I had planned that as we did our seismic work later, that I would add to that with the water depths; but I don’t think that I ever did. At that time, although I was a geologist, there wasn’t anybody else there to deal with the Indonesians; and of course, that took a lot of my time. I had a very difficult time spending much time on my drafting board for the first months after we got started.
I’d never worked offshore geology.
Well, this is interesting.
At that time was before satellite positioning—long before. As a matter of fact, we’re the first people that ever positioned a drill ship with satellite. But the radius they’d set up three stations and we had to get a surveyor; and there wasn’t any surveyors in Indonesia; but there was an old German who had claimed that he had—who had claimed that he had taken Rommel across the desert. And so we hired him and he came with his vehicle all loaded down with all this surveying equipment, and he took off to survey these radius stations for us.
And when it was about a three months job and when they came in to start the seismic program, Western Geophysical came in and they flew our—flew the radius points and our survey was off.
And we—and I sent my assistant down to find out what had happened, and this surveyor was using a rope and a compass for his survey, and he was romancing the chief’s daughter, and we had to fly in—we had to fly in a real survey team from Spain to finish it off to get our program started. It was a very fascinating time. I might add the time when we lived there in Jakarta, when we first went there, there were but 90 American families in all of Indonesia.
Well, we knocked on doors. We had the help of this man from the movie industry. And I learned to—I met a lot of these people and they were all individually nice people.
The Indonesians are very, very fine people. In spite of the fact that they kill each other and all that sort of thing—or they did. They're—and even those people in the leftist leaning Permegan became good friends. So that when I finally did go back, all of these people were there to testify for me or to indicate that I really was—we really were serious about what we wanted to do.
But I—when I first got there on my first trip, I realized that I was the only kid on the block. There was no competition. There were nobody in any business trying to do business with Indonesia.
I suppose if we’d had any sense, we wouldn’t have been there either. And so a lot of—a lot of my success has to to be that being naïve and not knowing that you can’t do it.
But I realized I was the only kid on the block ‘cause there was nobody else in any business that was doing anything in Indonesia. The Caltechs and Stanvac and some of the rubber companies were trying to hold on. Shell was still there trying to hold on. Shell sold out a little bit later to Permina, one of the Indonesian companies.
As I said, Pat McDonough went with me on our first trip. But on my second trip I went alone, and I arrived there—I arrived there, I think it was in late-January in 1965, and it was all kinds of turmoil. The USIS offices were taken over. The U.S. Embassy had been entered. The oil companies, they were forcing Indonesian management on them. The UN was pulling out.
You know I spent my time going to cocktail parties to the UN as they were leaving the country. I—on that trip I waited two weeks—a full two weeks before I had my first—my first meeting and it was unsatisfactory. But by the middle of March, there was shooting and there was a lot of unrest and I decided that this is the end of my exploration there, my contract efforts.
And in mid-March I went to back to Billings hopeful of—or feeling that I’d never see this part of the world again and having to open my neglected consulting practice.
But on September 30, 1965, the Communist PKI Party tried to take over the government. The coup was aborted, led by General Suhartu after six of the top western generals who had been killed. A long period of killing and unrest followed. But with the encouragement of my IIAPCO investment partners, particularly Dave Dodge. He said, “Would you—why don’t you go back?” I returned to Jakarta in June 1966. In spite of correspondence from the US Embassy suggesting caution and that we should wait awhile; but after thinking about it for a few days, we decided—I decided to go. And I was alone because we were unable to afford a lawyer to accompany me. But as most any independent consulting geologist I had some land, some contract, legal, and financial exposure. So I wasn’t—I wasn’t completely in the dark on all of this. It urned out that Major General Ibnu Sutowo, who had run Permina, the state oil company operating in northern Sumatra, was now Minister of Mining Oil and Natural Gas and Director General of Oil and Gas Affairs. He was also the president of Permina. He was also pro-business and pro-west. He had dealt with two small companies, Asimera in northern Sumatra and Refining Associates. They were two small independents. So he a pretty good idea how independents work. And when later on when he was criticized for dealing with little guys, he said—he says, “If the majors—he says, “If the majors don’t wise up,” he says, “the independents of today will be the majors of tomorrow.”
Anyway, he became of course my real—I guess, maybe he’s my postgraduate mentor. But anyway, as I said, Shell finally sold out. And any American—any American was suspect and their electricity was being—was being cut off. Anyway, I went home with tail between my legs. But anyway, General—when I arrived back, I arrived back in the middle of the week; and I made my usual protocol calls to the Embassy and to the Pertimina—or to the oil Ministry and places like that. But I thought, “Well, this is—Friday is a Muslim holiday.
I’ll go to the beach for the weekend.” And it turned out I got back Sunday night, there was a message that General Ibnu was expecting to meet me on Saturday morning and I thought I had blown it; but I went down to apologize on Monday morning; and he met me right away. He’s a very dark complected Indonesian, very fine features. And he didn’t smile at all.
Later he smiled a lot. But anyway, he asked me—he asked me how long I intended to be there. And I said—I said, “Until I got a contract or you threw me out.” And he liked that.
And most people that go from a large company want to go in one day and out the next because Denver—or Jakarta then was very much of a hardship post.
Anyway anyway, at the end of that first meeting with Ibnu, he said, “Are you ready to start?” He outlined to me the basic terms of production sharing which was where the government had—the government would have a direct interest in the properties rather than being a royalty owner, the old colonial method. And he called it production sharing, not profit sharing.
And he outlined that to me and he said to me, he says, “Are you willing to work under—to open discussion under these circumstances?” And of course, what I'm only going to say?
I say, “Of course.” And he said—he looked at his watch and he says, “How about in 30 minutes?” This is—this is after previous times I’d wait two weeks, three weeks, a week before any meeting of any kind. And so 30 minutes later I was in a meeting with two of the Ministry epresentatives. One of them was a lawyer. The team eventually expanded to four of them.
So there were four of them on that side of the table and just me. And I think that probably helped. They felt—they felt so sorry for me that a week or two later they offered me an Indonesian lawyer. And it was—he worked with the Ministry and with the Permina; and he was a—his name was Roger Machmud. And Roger’s mother was Dutch and his father was a sultan’s son from northern Sumatra. And they had been caught in Holland during the war and he ended up going to college in Holland and so he was very—he was a very good lawyer, very good English. Of course all of the Indonesians speak good English. We had a driver that we paid $10 a month could speak six languages. We had—we had nine people in the household for a while. It was like having nine more kids and about ten dogs. But anyway, was a fascinating time of my life. The contract that he outlined to me was that we—the government, Permina would have 65 percent and the investing company, IIAPCO, would have 35 percent unless we were willing to offer a big, big bonus. And he asked if I was willing to work under these conditions and I said of course. Anyway, these meetings went on—these meetings went on daily and their offices at the time closed at 2:00. So I would be down there negotiating with them until 2:00; and then after Roger Machmud became my lawyer, he and I would go out and have lunch and discuss what went on that day and we’d go to my room where we—where they had given us a secretary who was good at—a good English—good at English and who is typing the contract. The contract, incidentally was done in English, which is very fortunate for me because that’s all I speak and I don’t do that very well. Anyway, we went along and started work on the contract and it went much faster. Although it seemed like it took forever, it really went quite fast. And back to Ibnu who later became a very good friend and if I ever had any problems with somebody putting their hand out to me or wanting a kickback, I would go to him and he would clear it all up. Once somebody bought a house and said that’s the house you're supposed to go into for your office, and I went to Ibnu and I said, “Do I have to take that?” He says, “Of course not.” I mean he really stood up for me. He really was—he really was a great man. What would—later on they wanted to transfer Roger Machmud to Irian Jaya, and he didn’t want to go and was going to quit. He had, after he had—after he had come back to Indonesia, he had gone to work for Shell Oil Company, and when Shell was sold out to Permina, he went with Permina and then with the Ministry. But anyway, when he was about to quit, my lawyer friend on the team said, “You should hire Roger.”
And I said, “They’ll probably not like it.” And they said, “Well, there will be no problem.” So I hired Roger. I don't know it was $100 a month or something like that. I think he, at that time, he was making $20 a month, and I think I upped it to $100. When we got the contract, I gave him a bonus of $1,000. It seems ridiculous now. But anyway, I’ll get on to more of Roger later.
He became my eyes and ears and was very, very good. When Arco took over as operator—Arco by that time had merged with Sinclair and Arco—when Arco took over as operator, Roger went with them; and they didn’t know whether they would keep Roger or not because he was schooled by me; but Roger ended up being president of Arco Indonesia with 2,000 employees under him. IIAPCO was the first company in any business from a western country to endeavor to invest after the aborted coup. Indonesia, as well as General Ibnu, was anxious to show the world that Indonesia had done about face and was no longer Communistic. On my two previous trips, I had met a lot of friends from both the Pertam and the Java company and from the Ministry. And they had informed Ibnu of my prior interest in the area of my interest. They gave me a good recommendation and they kind of felt that offshore Java was an area that they felt was reserved for IIAPCO. I really—I really in many ways fell into all of this. It took eight days for a telegram to go to the U.S. and get a return answer; and on occasion I would fly all the way to Bangkok, 6,000 miles, just to make a radio phone call back to the U.S. because you couldn’t get good communication in Indonesia. And Singapore, at that time, was at war with Indonesia so I couldn’t stop in Singapore.
Yeah, I used to land—when the war was going on, at that time, they were puddles. This is before the 747s and we’d puddle jump and we’d stop in Vietnam on the way.
And every day we would negotiate and mostly what we were doing was changing wording to satisfy a very proud, young country. It was just wording. Permina will do—Permina has the right to do this but they’ll turn over the booking—keeping of the books to you and that type of thing. So it was—a lot of it was in the wording of making it sound like we really are there as a partner. They were, but they weren’t really. They could’ve had they wanted to, but they really turned it all over to the operator and that’s the thanks to General Ibnu.
But anyway, we began our first draft on July 8, 1966. And the first draft was submitted on July 12. It was sent to the U.S. Embassy. I was making a lot of effort with the U.S. Embassy, and they allowed us to send the first papers home by the Embassy pouch back to Denver. And I had sent word to please keep the changes to a minimum because we—it’s very difficult.
Trust my judgment and all. My biggest concern was that we properly addressed U.S. tax laws. After Permina’s review and comments, we began a second draft and presented it ahead of schedule on July 20. At that time Ibnu was receiving a great deal of resentment, political resentment, of people because he was such a strong, strong man, did things exactly like he wanted. And the other reason that I got a contract was this was one man I was dealing with, wasn’t dealing with a whole group. And it was—and I don't know that there was any other country that deals quite like he did. He probably was the second most powerful in Indonesia in that time. I'm diversing here, but anyway, he knew that he was about to be relieved of part of his three positions. And on the 25th of July, they announced that the new Minister of Mining and it was a man that pposed Ibnu’s contract and to us negotiating with him, unknown and presumably underfinanced group. And Ibnu said, “You just stay with it.” I did not meet Ibnu—after that first meeting with Ibnu when I first met him, I didn’t meet him again until in early August when the contract was almost at its final stages. It was only then and later then that he invited me on some of his dedication trips to new wells and things that they were drilling that I became very well acquainted with him, and he became very—and with his family, and they became very good sponsors of my family. The attitude was if we could get a contract signed before there was a lot of changes and what it was, that they would honor the contract. So he was as anxious to get this thing done as I was. And on August 2, I submitted what I thought would be our final draft for approval. And on August—but on August 15 I met again with the negotiating team and Permina asked for a 33 1/3 percent increase of our $5 million 5-year expenditure commitment. And I counter offering $7.5 million over 6 years with a backout possible after three years which would mean we could get out if the politics were bad or if the geology was bad, we could get out with only spending $2.1 million. And of course, I couldn’t—there was no way to contact my partners in time. I mean with eight days one way or the other, we couldn’t do much. But on August 18, I rrived at Permina’s office to discuss a few last changes. Ibnu had just told his team that he was upset with their delay and he wanted it signed that day. And the Permina team asked me if I was ready, and I swallowed hard, and I said, “You bet.” I had nothing to read and I was in this little office plank all by myself, just nothing but biting my fingernails while they typed up the final contract. They had about four Indonesian secretaries typing up this contract in English. And we—they had the contract finished by 2:00, and I signed it at 2:00. They—Ibnu was out playing—he’s a great golfer. He was out on the golf course with an Asamera friend, who is a friend of mine. And that night the Asamera friend called me to congratulate me, telling me that Ibnu was going to sign the next morning. So the next morning, I sent a telegram to my partners; and I said, “Contract signed by me yesterday and the General this morning. Could not wait your reply. Signing became urgent. Urged—used my best judgment. Hope you approve. Cheers.” And of course I thought we had half of Southeast Asia under lease. The production sharing concept established this contract—established by this contract became the worldwide model for developing nations around the world. Prior to IIAPCO’s signing of this contract, only a few well-financed U.S. independents such as Amenol had ventured into foreign exploration. I believe our contract and our follow-up successes in establishing significant reserves helped change the game where the little guy could go around the world. On August 30, Platts Oilgram announced IIAPCO’s contract signing. Several of the majors began to realize what we had accomplished and how production sharing—how the production sharing contract might change their own game.
They called us those goddamn Billings cowboys. A great deal of pressure was put on the U.S. Embassy and on the Indonesian government to cancel our contract.
IIAPCO still needed Indonesian Presidium approval before we could begin. The General had assured me, “You just relax. I’ll get this done.” But as a result of this negative pressure by some of the majors, we didn’t receive approval until in January 1967, rather than the few days we had anticipated. And the only reason—the main reason we got this was, by this time, there had been some Japanese contracts and some Canadian contracts signed; and the Canadian government and the Japanese government were very much behind fighting for their people. We never got any help of that kind. I had support in their offices from the U.S. Embassy but they never would go to bat for us in this one. Anyway, we—so we got it signed.