The Three Big Oil Companies in Indonesia before 1945

Sungei Gerong Refinery in South Sumatera in 1926

The first oil exploration in Indonesia started not long after Colonel Drake successfully drilled the first oil discovery well in Pennsylvania in the United States in 1859.

By 1869, Dutch businessmen in Indonesia, known as the Netherlands East Indies at that time, had noticed and recorded 53 oil seepage locations in Sumatera, Java, and Kalimantan.

Then the first oil well drilling in Indonesia took place in 1871 in West Java.

However, commercial discoveries were made only several years later when a Dutch businessman drilled successful exploration wells in Pangkalan Brandan in North Sumatera in 1885 and Sanga-Sanga in East Kalimantan in 1892.

These two discoveries caught the attention of the world and put Indonesia on the map as one of the countries with interesting oil potentials.

By 1900 there were already 18 oil companies searching for oil in the Netherlands East Indies (NEI). All these companies were either Dutch companies or non-Dutch companies registered in Nederland. The high level of activities resulted in significant oil discoveries in the early 1900s.

Following the oil discoveries, refineries were built in Pangkalan Brandan in North Sumatera in 1892, Sungei Gerong in South Sumatera in 1926, Balikpapan in East Kalimantan in 1922. By 1940, there were already seven refineries in NEI: three in Sumatera, three in Java, and one in Kalimantan.

In 1938, the daily crude oil production was about 140,000 BOPD and in 1953 it was about 190,000 BOPD.

The high level of oil production and refining activities from 1900 to 1940 made Indonesia well-known as one of the world’s significant crude oil producers and refined product suppliers at that time.

Recognized as a significant oil producer, Indonesia was invited to become a member of OPEC 1962.

The three oil companies that produced about 90% of all the petroleum in Indonesia during the Dutch colonial period are:

  • BPM – Bataafsche Petroleum Maatschappij
  • STANVAC – Standard Vacuum Oil Company
  • CALTEX

Here are the stories of these three big oil companies in Indonesia before 1945.


BPM

BPM is Bataafsche Petroleum Maatschappij, also called the Batavian Oil Company. Batavia, which is Jakarta today, was the center of the NEI government.

BPM was established in 1907 by KNPM (Koninklijke Nederlandsche Petroleum Maatschappij) also known as Royal Dutch Petroleum Company and Shell Trading and Transport Company to explore and produce oil in the Netherlands East Indies.

Royal Dutch Petroleum Company owned 60% and Shell owned 40% of BPM.

Before BPM was set up, there were already as many as 18 oil companies operating in the Netherlands East Indies (NEI) from North Sumatera, Java, Borneo, and all the way to Papua.

BPM quickly took over almost all of these companies and dominated the oil industry in Indonesia. By 1920, it had controlled more than 95% of crude oil production in Indonesia.

In 1921, as the government of the Netherlands East Indies wanted to take part in the booming oil business in Indonesia, NEI and BPM formed another company called NIAM (Nederlands Indische Aardolie Maatschappij).

Many big changes took place in the oil industry after Indonesia declared its independence in 1945. The first big change was the takeover by the government of Indonesia the NEI’s 50% ownership in NIAM.

This marked the beginning of an Indonesian government-owned oil company. It also started a working relationship between BPM and the government of Indonesia. With this relationship, BPM managed to extend its activities in Indonesia until 1965.

In 1965, BPM sold all its assets in Indonesia to the Indonesian state-owned company PN Permina for US$110 Million. Permina later became Pertamina.

BPM operations in Indonesia were extensive. They stretched from the western part of Indonesia to the eastern part of Indonesia.

Here are the operations of BPM in various parts of Indonesia.

BPM In Borneo

In 1907, right after it was formed, BPM acquired the oil fields and refinery in Balikpapan from Mathilda company. It also acquired the oil fields in Sanga Sanga and Tarakan which had been discovered previously by KNPM.

BPM expanded its exploration and production aggressively in East Borneo and continued to discover several other fields in these areas.

On the small island of Tarakan, BPM drilled 700 oil wells and built a refinery.

Production continued to increase and in the 1920s the Tarakan wells produced about 18,000 BOPD, a third of the total oil production in the whole Dutch East Indies.

BPM in North Sumatera

BPM acquired from KNPM the oil fields and the refinery located at Pangkalan Brandan. BPM also took over the operations of the oil tanking and the oil export facilities at Pangkalan Susu. Pangkalan Susu was the first oil-exporting port in Indonesia.

BPM in Java

In Java, BPM acquired the oil assets of DPM (Doordsche Petroleum Maatschappij), a Dutch oil company established by Adriaan Stoop in 1887.

DPM had discovered and operated the Kruka Field and the Djabakota Field near Surabaya in East Java. DPM also had built the oil refinery in Wonokromo. Completed in 1893, this was the first oil refinery in Indonesia.

By acquiring DPM, BPM also became the owner of some thirty oil fields in East Java including another refinery located in Cepu which was built in 1894.

BPM In South Sumatera

In South Sumatera, BPM took over SPPM (Sumatera Palembang Petroleum Maatschappij). SPPM had been operating the oil fields in its concessions in Banyuasin and Jambi.

BPM also acquired the oil assets of MEPM (Muara Enim Petroleum Maatschappij). MEPM had discovered the Muara Enim field and built the Plaju Refinery.

BPM In Irian Jaya

In 1935 BPM expanded its search for oil into Irian Jaya. For this venture, along with other partners, BPM formed a joint venture company named NNGPM (Nederlandsche Nieuw Guinea Petroleum Mij) with exploration rights for 25 years.

By 1938 they had discovered the Klamono oil field. followed by Wasian, Mogoi, and Sele fields.

However, for commercial reasons, these fields were not developed.

STANVAC

STANVAC – Standard Vacuum Oil Company – started as NKPM (Nederlandsche Koloniale Petroleum Maatschappij) in 1912. NKPM was set up in Nederland by the American company Standard Oil of New Jersey so it could explore for oil in Indonesia.

Since Indonesia was under the control of the Netherlands East Indies at that time, Jersey Standards had to set up NKPM as a Dutch-registered and Dutch-managed company with headquarters located in The Hague.

NKPM began to make exploration in Java and South Sumatera in 1914.

It was in South Sumatera NKPM found its liquid gold. Operating from the city of Palembang, it discovered the Petak field in 1914, the Trembule field, and the huge Talang Akar field in 1921. These discoveries prompted NKPM to construct the famous Sungai Gerong oil refinery.

In 1922 NKPM changed its name to SVPM (Standard-Vacuum Petroleum Maatschappij).

It also constructed the 130 Km long pipeline from Pendopo area to Sungai Gerong to bring the crude oil from the prolific Talang Akar field to the refinery.

The Sungai Gerong refinery began operating in 1926 and became the largest and important oil refinery in South East Asia.

It was so important that the refinery was occupied by Japanese forces from 1942 to 1945 during World War II.

To meet the increasing demands for petroleum products in Africa and the Asia Pacific, Standard Oil Company of New Jersey and SOCONY (Standard Oil Company of New York) jointly created STANVAC (Standard Vacuum Oil Company) in 1933.

This was a synergistic partnership as Standard Oil Company of New Jersey had the oil production capacity and SONONY had the marketing facility.

The newly created Stanvac in the Netherlands East Indies consisted of three companies: Standard Vacuum Petroleum Maatschappij (SVPM), the Standard Vacuum Sales Company (SVSC), and the Standard Vacuum Tankvaart Maatschappij (SVTM).

Stanvac took over all the assets of SVPM in Indonesia and became a full-fledged oil company involved in oil exploration and production, refining, transportation, and distribution in more than 50 countries.

However, Stanvac continued to operate under its Dutch company name – SVPM – in the NEI.

Stanvac produced oil from many fields in South Sumatera. The notable ones were Talang Akar, Djirak, Benakat, Radja fields.   

In 1934, Stanvac expanded its operations to Central Sumatera.  Here it discovered and developed the well-known Lirik field and later the Binio field.

Things began to change after World War II and the declaration of independence of Indonesia.

It was after the declaration of independence by Indonesia in 1945, to distance itself from its Dutch connection, Stanvac began calling itself  Stanvac Indonesia as its company name to show its American origin.

In so doing, Stanvac was able to keep its assets and continue to operate in the newly independent Indonesia.

In 1960, as Indonesia wanted to have more control of the oil operation and business, it introduced the 1960 Oil Law which stated that all foreign oil companies must operate as a contractor for the Indonesian government.

On 24 September 1963, Stanvac signed the “Contract of Work” agreement with Indonesia’s Pertambangan Minjak Nasional (Permina).

The contract allowed Stanvac to continue to have full control of its oil exploration and production operations in Indonesia. Under this agreement, Stanvac must sell its refinery within ten to fifteen years.

However, Stanvac had to sell its Sungai Gerong refinery to Pertamina in 1969.

Stanvac Indonesia continued to operate its oil fields until finally, it left Indonesia in 1995 when it sold all its assets to Medco Energi for 88 million USD.

CALTEX

CALTEX was established in 1936 by Standard of California and Texaco to explore and produce oil in Indonesia and to expand its oil business in the Asia Pacific.

Earlier in 1924, The Standard of California had sent its team of geologists to Indonesia.

To operate in the Netherlands East Indies at that time, Caltex must obtain oil concessions from the government of NEI (Nederlands East India) who was the ruler of Indonesia at that time. To do so, Caltex established NPPM (Nederlandsche Pacific Petroleum Maatschappij), a Nederland registered company with its headquarters located in The Hague. Also, the company must be run by Dutch nationals.

In the same year, Caltex received its first oil concession in the Rimba area which is now known as the Rokan Block in Central Sumatera.

Soon after that Caltex began to find oil, but it was in 1941 that  Caltex discovered the huge Duri field. Due to the high pour point of its low gravity crude oil, it was necessary to use steam-flood to drive out the oil. Due to the success of the steam flood method, the Duri field became known as one of the largest steam-flood projects in the world. In spite of the huge challenges to produce the field, it has produced more than 2.64 billion barrels of oil so far.

Several years later Caltex went on to discover another giant oil field, The Minas field.

The story of the Minas field discovery is very interesting. In 1940, at the beginning of World War II, Caltex had started the drilling of its exploration well in the Minas area. However, before the drilling was completed, Caltex had to abandon the drilling as the Japanese army was coming to occupy the area and to take over the oil facilities.

The Japanese army engineers resumed the drilling of the well in 1943 and discovered oil when it drilled down to 2600 feet deep.

At the end of the war, Caltex regained control of its oil assets and continued to investigate the Minas field. After drilling several additional wells, Caltex confirmed the discovery of the huge Minas oil field.

Caltex went on to discover many smaller oil fields in its concession area.

By the late 1950s, Caltex became one of the largest oil producers in Indonesia.  At its peak in 1973, Caltex produced about 1 million BOPD from the Duri, the Minas, and about 80 smaller oil fields. Caltex holds the record of having the highest daily crude oil production rate in Indonesia.

Caltex completed the construction of a crude oil export terminal in Dumai in 1958.

Caltex signed a work contract agreement with Indonesia in 1961 giving it the right to continue to operate the Rokan block until 2001. Later on, Caltex managed to obtain a work contract extension to operate the block for another 20 years until 2021.

The two owners of CALTEX, Chevron, and Texaco merged in 2001 to become ChevronTexaco Corporation. Later on, in 2005, ChevronTexaco Corporation dropped the name Texaco and renamed the company as Chevron Corporation.

Following the name change of its parent company, Caltex in Indonesia which was initially incorporated as PT Caltex Pacific Indonesia changed its name to PT Chevron Pacific Indonesia.

Although the name Caltex disappeared in Indonesia after the name change, the Caltex petroleum brand is still alive in many countries in the Asia Pacific.

Epilogue

These three companies of the past were great companies to work for. Since most of their oilfields were located in the middle of a jungle, the companies provided good and well-rounded facilities – schools, clinics, cafeterias, places for worship, sports, and entertainment – to their employees and their families.

Many people and children of those who had worked for these companies have fond and colorful memories of the companies.

To me, the one that is the most interesting is BPM.

The joint venture of Royal Dutch Petroleum Company and Shell Trading and Transport Company that formed BPM – Bataafsche Petroleum Maatschappij – in Indonesia in 1907 sowed the seed that eventually grew into the current giant Shell Oil Company.

Also, BPM had a role in the rise of Pertamina when Pertamina took over all the assets of BPM in 1965.

WRITTEN BY

Jamin Djuang – Chief Learning Officer of LDI Training and author of The Story of Oil and Gas: How Oil and Gas Are Explored, Drilled and Produced


 

Balikpapan – The Most Interesting Oil Town of Indonesia

City of Balikpapan - Photo by Uut Minhudan
The city of Balikpapan – Photo courtesy of Uut Minhudan

Balikpapan, located in East Kalimantan, is the most well known and interesting oil town in Indonesia, and possibly in the world. It is at the center of oil and gas exploration and production activities that have been taking place in East Kalimantan since 1897 when the first oil well was drilled in Balikpapan. It is also the battleground of two fierce battles during World War II. It is set to become even more well known with the announcement of the relocation of the capital city of Indonesia from Jakarta to East Kalimantan.

Here are the interesting facts about Balikpapan.

The First Oil Discovery At Balikpapan

Oil was discovered in Balikpapan in 1897 when Jacobus Hubertus Menten, a Dutch mining engineer observed oil seepages in the area. With the help from Sir Marcus Samuel from Shell Transport and Trading Ltd, they drilled the famous Well Mathilda B-1 on 10 February 1897. The well was drilled to 222 Meter and it flowed initially at 184 barrels per day. This oil discovery in Balikpapan took place 38 years after Sir Edwin Drake drilled the world’s first oil well in America.

With the discovery, Jacobus Hubertus Menten and Sir Marcus Samuel formed Nederlandsch Indisch Industrie en Handel Maatschappij (NIIHM), and it continued to discover other oil fields away from Balikpapan. 10 February 1897 is considered the birth date of Balikpapan.

The Balikpapan Refinery

To process the crude oil from the surrounding area and to meet the needs for fuel, the oil refinery of Balikpapan was completed in 1922 by BPM (Bataafsche Petroleum Maatschappij) which was a subsidiary of Royal Dutch Shell. The Balikpapan refinery was damaged in 1942 when the Japanese army invaded Balikpapan. The refinery was controlled by the Japanese army in 1942-1945. BPM regained control of the refinery after the Allied forces ended the Japanese occupation of Balikpapan in 1945.

Several years later, Pertamina gained control of the refinery in 1949. The refinery has been expanded and upgraded several times to meet the increasing demand for fuel in the eastern part of Indonesia.

As one of the largest refineries in Indonesia, it is set to become even bigger. It is currently undergoing a large 4-billion-dollar expansion which will increase its processing capacity from 260,000 barrels per day to 360,000 barrels per day when it is completed in 2021. The refinery will have the capability to produce high-quality Euro V standard fuels.

The Discovery of Giant Oil and Gas Fields

Balikpapan experienced its biggest boom when several large international oil companies came to town after the production sharing contract scheme was introduced by Indonesia in 1966.

Balikpapan was the base of Union Oil of California (Unocal), Total and Roy M. Huffington Incorporated (Huffco) during their exploration and production operations in East Kalimantan where they discovered several giant oil and gas fields.

Pertamina has a huge presence in Balikpapan since 1949 when it took over the oilfields and the refinery which were previously operated by BPM (Bataafsche Petroleum Maatschappij), a subsidiary of Royal Dutch Shell.

Operated from Balikpapan, Unocal in partnership with Japex discovered the giant offshore oil field of Attaka in 1970. It also discovered the offshore Sepinggan field and the Yakin field both of which are clearly visible from the hills at Balikpapan. In 1996, Unocal discovered and developed the West Seno field which is the first deepwater oil field in Indonesia.

Total with its partner, Inpex, acquired the Mahakam Block in 1966. They discovered several giant offshore oil and gas fields: Handil, Peciko, Tambora, Bekapai, South Mahakam, Sisi-Nubi, and Tunu.

Huffco discovered the giant onshore Badak gas field in 1970 in East Kalimantan. The discovery of the giant Badak gas field had a huge influence on the course of oil and gas development in East Kalimantan. It prompted Huffco and Pertamina of Indonesia to build an LNG plant making it possible to export the gas.

Besides the Badak field, Huffco subsequently discovered the Nilam, Pamaguan, Semberah, Mutiara, Beras, and Lempake fields.

Huffco later became known as VICO Indonesia (Virginia Indonesia Company) in 1990 after Mr. Roy M. Huffinton sold the company.

After the introduction of the production sharing contract scheme  (PSC) in 1966, and with the discovery of several giant oil and fields in East Kalimantan and in other parts of Indonesia, crude oil production in Indonesia increased from 500,000 BOPD to 1,650,000 BOPD at its peak in 1977.

The Badak LNG Plant in Bontang

The LNG plant known as the Badak LNG was completed in 1977. Located in Bontang, besides processing the gas produced by Huffco from the Badak field, the Badak LNG plant also processes gas produced from the fields operated by Unocal and Total located in East Kalimantan. Up until the completion of the LNG plant, most of the associated gas produced by Unocal and Total were flared.

The Badak LNG plant initially comprised of two trains. Over the years, with new field discoveries, six additional trains were constructed. With 22.5 million tons per year LNG production capacity, it is one of the largest LNG plants in the world.

As of 16 September 2019, Badak LNG has delivered 9445 LNG cargoes to countries such as Japan, Taiwan, Korea, China, the USA, Russia, and India. 

The Fierce Battlefield during World War II Twice

Being rich in oil and having a refinery, Balikpapan was so vital that it became a battlefield twice during World War II.

The Battle of Balikpapan in 1942

During World War II, in order to control the supply of fuel, Japan invaded Balikpapan in 1942. The Dutch garrison resisted the invasion but eventually was defeated by the much bigger Japanese forces. The refinery was partially destroyed during the invasion. Japanese forces took control of Balikpapan, oil production and the refinery from 1942 to 1945.

The Battle of Balikpapan in 1945

To regain control of Balikpapan and the oil supply, the Allied forces directed by General Douglas McArthur and spearheaded by the Australian 7th Division invaded Balikpapan on 25 June 1945. After 3 weeks of fierce fighting and heavy bombing, the Japanese soldiers in Balikpapan finally surrendered on 21 July 1945. Many Japanese soldiers fought to the end in the battle. There is a Japanese cemetery hidden among the hills in Balikpapan.

The Coal Boom of Balikpapan in the 1990s

Balikpapan experienced another economic boom when it became the center of the booming coal production in East Kalimantan beginning in the 1990s.

The Balikpapan Coal Terminal completed in 1995 is one of the biggest coal terminals in Indonesia. It has a throughput capacity of 15 million tons of coal annually.

Will Balikpapan continue to boom?

Since the discovery of the first oil well in Balikpapan in 1897, Balikpapan has seen several booms in the last 120 years. It has grown from a small fishing village to become a city with a population of 850,000 today.

On 26 August 2019, the President of Indonesia, Joko Widodo, announced that Indonesia will relocate its capital city from Jakarta to East Kalimantan. As the main gateway to East Kalimantan, Balikpapan will be the center of activities during the construction of a new capital of Indonesia. So, Balikpapan will likely continue to boom.

Finally, Balikpapan indeed is a very interesting town. As an oil and coal mining town, it has been voted several times as the most liveable city in Indonesia.  Thousands of oil people from around the world have worked and lived here. Many children of international expatriates and Indonesian oil professionals from Java, Sumatera and other parts of Indonesia grew up in Balikpapan. Most of them have fond memories of Balikpapan.

Many sons and daughters of the first-generation Indonesian oil professionals follow the footsteps of their parents to work for oil companies in Balikpapan. There is a saying in Balikpapan whoever has drunk the water of Balikpapan will surely return. The writer of this article lived and worked for Unocal in Balikpapan from 1976 to 1980, and he has returned to visit this interesting place many times.

This article was written by Jamin Djuang, a published author of “The Story of Oil and Gas: How Oil and Gas Are Explored, Drilled and Produced” for readers who have not seen an oil field.