Indonesia Announces Four Winners Oil & Gas Blocks under Gross Split

Presiden Joko Widodo (Jokowi) at 42nd Indonesian Petroleum Association Convention & Exhibition - Photo by IPA

JAKARTA (TheInsiderStories)–The Indonesian government has picked the winner of four oil and gas blocks that will be operated by production sharing contractors (PSC) under the scheme of gross split.

The gross split scheme has been applied by the government since January 2017 as the alternative to the cost recovery scheme already applied for other oil and gas contracts since the 1960s.

Yesterday, Energy and Mineral Resources (EMR) Minister Ignasius Jonan said that the four blocks, namely East Kanal Block, East Seram Block, Citarum Block, and Southeast Jambi block, are part of the seven blocks recently tendered by the government with a direct bidding system.

He explained the four winners of the four blocks’ tenders, with a  total committed investment of US$44.65 million and the signing bonus of $3.25 million.

The other three blocks failed to draw interests from investors. The three consist of the conventional block of East Papua, and two non-conventional blocks—Sumbagsel Coal bed methane and Shale Hydrocarbon in North Sumatera.

“We will apply the gross split scheme for the four blocks, but we will respect the old contracts [under the cost recovery scheme],” the minister said.

The four winners are Eni Indonesia Ltd, Lion Energy Ltd, the consortium of PT Cogen Nusantara Energi and PT Green World Nusantara, and the consortium of Talisman Consortium West Bengara B.V-MOECO South Sumatra Co. Ltd.

Eni Indonesia’s committed investment for East Kanal block is $35.35 million and a signature bonus of $1.5 million. Lion Energy Ltd is committed to investing $900,000 and paying the signature bonus at $500,000 for East Seram block.

The consortium of PT Cogen Nusantara Energi and PT Green World Nusantara will invest $3.75 million and pay a signature bonus worth $750,000 for Citarum Block. While Talisman Consortium West Bengara B.V-MOECO South Sumatra Co. Ltd will invest $4.65 million and signature bonus at $500,000 for  Southeast Jambi Block.

Previously, in December 2017 the ministry of EMR announced two oil and gas blocks Andaman-I and Andaman-II, that will be operated under the gross split scheme. The two blocks were part of the five blocks that were offered through direct bidding last year. The winners of the two blocks are Mubadala Petroleum and Premier Oil with a total committed investment of $ 9.7 million.

Overall, this year the Indonesian government is tendering 24 oil and gas blocks, consisting of 5 blocks through direct bidding, and the other 19 blocks through the regular auction mechanism. The direct bidding process has been completed and the winner announced on May 2.

But for the other 19 blocks, the government set the deadline until June 19, 2018 for participants to submit all necessary data.

The government has determined that all of the contracts of the blocks will be based on the gross split scheme, which is designed by the government as a way to increase investments in oil and gas industry, following the decrease of investments during the last few years, which was partly due to the decrease of oil prices and partly due to the un-conducive condition of investments in the country.

The investments in the oil and gas sector dropped from $20.72 billion in 2014, to $17.38 billion in 2015, to $12.74 billion in 2016, and to $7.98 billion in 2017, which was the lowest so far.

The gross split scheme was expected to be more attractive for investors, despite the fact that many industrial players and analysts had stated that the gross split is more appropriate for exploitation blocks, and not so for exploration blocks.

The oil and gas industrial players have asked the government to give more incentives under the new scheme, especially for explorations which are very risky and need a huge amount of funds.

Early last month, the Government issued a favorable tax ruling to be applied to oil and gas PSC, based on a gross split scheme, as a move to attract more investors into the oil and gas sector.

The tax code is labeled ‘Government Regulation No. 53/2020 on Tax Treatment for Upstream Oil and Gas Business Activities and Gross Split-based Production Sharing Contracts’. The new rule took effect Dec. 28, 2017.

Vice Minister Archandra Tahar explained how the content of the regulation has changed little from the draft of the Government Regulation on Gross Tax Split. The tax rules will contain a loss carry forward for 10 years and indirect tax exemptions until the initial oil and gas production.

He is confident that these taxation rules will find acceptance among upstream oil and gas business players.