BP Exploration Indonesia (BPXI) was unsuccessful to achieve the 1995 performance targets in delivering new exploration options, gas sales agreement, and entering to the power generation project. The failures on these main activities have affected company ability to achieve the long-term company goals; by year 2005 BPXI to produce 300 mmscfd of gas and generate a sustainable $500 million NPV business to the corporation.



Industry and company analysis approach was used to understand basic causes and to get lessons from the above issues. With the aims are to understand the key success factors and BPXI competitiveness in the following three industry sectors; upstream E & P, domestic gas and power/electricity generator



Upstream E &P:

the five key factors to became successful in this industry are early entry, operatorships, cost effective, technology, relationships with Pertamina/government. BPXI has advantages in two factors'; early entry to or holding position in East Java and a capabilities to use new exploration concepts, but it has disadvantages in oparatorships, high evaluation /operations cost, and late entry to other potential gas area.



Domestic gas:

to became a successful player in Indonesia domestic gas, in addition to the upstream key factors three other key factors are required by this industry; access to the gas reserves near to the market, proactive gas marketing, and be adaptive to local environment. BPXI has strong position in gas reserves and potential area in East Java, and has a.ppropriate marketing strategy. But it seems to be weak in the marketing resources and local market know-how, and has limited network and reputation in the industry. "Unfavorable" existing gas sales contract has also constrained BPXI ability to optimize business value from the Kangean PSC.



Power generator:

company reputation and expertise in power technology, political & local industry network, and sound financial resources; these are three key success factors in power industry. BPXI has some advantages in raw material supply (gas) and possibly in financial resources, but has clear disadvantages in technology, reputation, and political network which all are critical to the business.



The company value chain analysis shows that the large portion of BPXI current business value is in Kangean PSC (ca. $ 400 m NVP), in which BPXI has limited control to manage this business. Increasing control over the potential business is important to ensure actual value delivery to BP, this can be done trough increasing exploration activities in the own area in Lombok PSC, and actively seeking new options. Effective joint activities or teamwork with Arco is also important to ensure maximum value delivery from the Kangean PSC.



The value chain analysis also shows number of company strengths and weaknesses in creating value trough their support activities. BPXI has particular strength in; flat organization system & participative management style, teamwork practices, technology and financial resources, and international supports for the upstream business. The weakness as indicated from the analysis are; high cost ratio for prospects evaluation, limited network and relationships with local industry and government, high payroll and office cost (P&O), limited staff career development & low utilization of local staff .



To maximize the value from current and future BPXI business, in order to achieve the company goals by year 2005. BPXI should focus improvement on the following issues.



Upstream:

Continue focus the domestic gas business, use the Kangean and East Java current asset as a core value generator. To generate a sustainable business BPXI should also continue seeking for new options, including export gas an oil options. Reduce the finding cost by rationalizing the ratio of evaluation cost to total exploration expenditures.

Gas marketing:

Focus on the East and Central Java markets, special efforts should be targeted for industrial customers (PGN) who has highest potential growth and sustainable demand. Build-up the marketing resources by hiring local marketing experts, increase market stimulation and promotion activities to the right target segment. Modify the marketing approach to be more adaptive to local market environment.



Power and pipeline:

power participation is only targeted for boosting gas sales, and to limit participation to minimum equity but sufficient for influencing gas use. II Promoting new power projects with minimum direct investment" will be an ideal approach for power. More attention to the pipeline business for stimulating the market and increasing control over the gas price to customers.



Support activities:

request the headquarter for local flexibility in adapting the corporate strategy and policy to be more adaptive to local market and l' business environment. Particular attention to reduce P&O, and to develop and implement career development plan to improve employee morale and productivity. In the relationships management issue, improvement should be focused on; improving know-how in initiating and developing personal relationships, widening political supports and influence trough involving the UK government officials in promoting BP businesses and building alliance with other British investors, and increasing BP profile trough well designed promotion strategy and activities.



Research Locatuion: BP Exploration Indonesia

Supervisor: [Wagiono Ismangil]

Accepted: June 1996