Summary
Exxon's almost insignificant production in Indonesia was stopped this week; ostensibly because the company had not properly permitted their pipeline with the local gov't officials. However, the only reason that Exxon was producing any oil at all at this point in time was at the request of the central government in Jakarta. What this show again is the weakness of Exxon's historical strategy of dealing with central governments. This strategy will have to adapt as the company faces increasing competition from national and independent oil companies who are better positioned to deal with local issues.
Analysis
From the inception of Exxon-Mobil in its Standard Oil days through the Valdez disaster, XOM has shown time and again that it fails to understand and account for local issues. Recent problems include the loss of their undeveloped Alaska blocks, how they dealt with the nationalization in Venezuela, and loss of their Natuna Sea assets in Indonesia. However, under Tillerson, the company seems to be trying to change as evidenced by their moves to reacquire the Alaska blocks. Of course, change will not come easily to a company whose strategy has been so successful and profitable for so long. This latest "chapter" relating to the Cepu Field probably presages future problems they will face as they ramp up towards full production. Likewise, they face serious issues at their Arun gas plant as their production declines and other companies, including major players Total and Eni, seem more aggressive and better positioned to explore for new supplies in the North Sumatra area. If Exxon fails to react and defend their position in these areas, it is likely that they will eventually end up with the same fate as their Venezuelan, Alaskan, and Natuna Sea assets.
