Oil and Gas Block - Photo by Pertamina

JAKARTA (TheInsiderStories) – Indonesian government reopens the option of scheme for the oil and gas industry known as cost recovery after having to work under a fixed split-cost system since 2017, the energy and mineral resources minister Arifin Tasrif said on Friday (01/10). Currently, both schemes of contracts could be applied in the block auction process.

“Both types of contracts can be applied now. But we are fixing several points related to the cost recovery scheme,” the minister told reporters at his office, without specifying the points to be changed.

In a cost recovery-based production-sharing contract (PSC), the government reimburses companies for upstream-related costs in exchange for a higher share for each company’s earnings from exploiting domestic oil and gas blocks. Meanwhile, in the so-called gross split scheme, companies bear upstream costs themselves, but the government receives a smaller cut of revenue determined in advance.

Under the gross-split scheme, profit splits between the government and contractors will “slide” up and down depending on several factors. Some of the factors include the status of the field, location, reservoir depth, reservoir type, amount of carbon dioxide, use of local industrial content and stage of production.

These variables will be added or subtracted from the base calculation, in which the new regulation was set to at least 43 percent for companies in oil projects and at least 48 percent in gas projects.

Meantime, under the cost recovery scheme, investors were entitled to 15 percent of the profit of an oil project and 30 percent of a gas project, with the government scooping up the rest.

Currently, the blocks auction process has entered the third stage, began in July 2019. There are four blocks offered includes the East Gebang block, located off the coast of North Sumatra, with an area of ​​4,213.93 km². The minimum commitment is definitely the exploration of the first three years, namely the G&G study and the acquisition of 400 Km 3D seismic processing.

Then, West Tanjung I block, located onshore Central Kalimantan, with an area of ​​5,459.15 km² with G&G study and seismic acquisition & processing 2D 600 Km. Furthermore, the Belayan I block is located onshore East Kalimantan, with an area of ​​5,276.28 km2 and a G&G study and 3D 400 km² seismic acquisition & processing.

Finally, the Cendrawasih VIII block, located offshore Papua, covers an area of ​​5,612.42 km² and a 2D 2,000-km seismic study and acquisition & processing. The minimum signature bonus for the four blocks has a uniform value of US$ 2.5 million with various advantages over each block.

In the previous auction, the government also offered four oil and gas blocks, consisting of two oil and gas blocks who did not get the first stage winner, West Ganal block and West Kampar block, and two new oil and gas blocks, Kutai and Bone blocks.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com