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JAKARTA (TheInsiderStories) – Singapore’s RH Petrogas Ltd., has been awarded new 20-year contract terms for two production sharing contracts (PSC) in Indonesia, said the company on Monday (25/06). The company became the first winner of the oil and gas contract in Indonesia with the concept of gross split scheme.
The Ministry of Energy and Mineral Resources of Indonesia (MEMR) plans to auction around 40 new Working Areas this year. Earlier, the Indonesian 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 gross split scheme will be applied to new oil and gas PSC, including oil and gas blocks being auctioned off by the MEMR. The tax code is labeled ‘Government Regulation No. 53/2020 on Tax Treatment for Upstream Oil and Gas Business Activities and Gross Split-based PSC.
The new rule took effect Dec. 28, 2017. The tax rules will contain a loss carry forward for 10 years and indirect tax exemptions until the initial oil and gas production.
Chang Cheng-Hsing Francis Group CEO & Executive of the company said in a statement, MEMR has notified the RH Petrogas get approval to participate in the new 20-year contract terms for each of the Kepala Burung PSC (Basin PSC) and the Salawati Kepala Burung PSC (Island PSC) in Papua Island upon the expiry of their current contract terms in 2020.
Under the Decrees of the MEMR, the company through its subsidiaries Petrogas (Basin) Ltd. and Petrogas (Island) Ltd. has been awarded a 70 percent participating interest in each of the Basin PSC and the Island PSC.  The remaining 30 percent participating interest has been awarded to PT Pertamina, the national oil company of Indonesia.
Under MEMR Regulations, a local company owned by the Regional Government in the area where the blocks are located has an option to become a partner (with up to a maximum of 10 percent participating interest) in each of the blocks and the participants of each block must accommodate such participation in proportion to their respective participation interests.
The existing Basin PSC and Island PSC will not be extended beyond their current expiry dates and the new terms have been offered under new PSCs based on the gross split model implemented by the Indonesian Government in 2017 to replace the cost recovery regime in existing PSCs.
Under the existing cost recovery regime, PSC contractors are entitled to recover their cost of operations in-kind out of gross production before any remaining “profit” production is shared with the Indonesian Government, and PSC contractors are liable to pay tax on their share of such profit.
Under the gross split regime of the New PSC, the Indonesian Government and PSC contractors shall share the gross production based on an agreed split, and PSC contractors are liable to pay tax on any profit after deducting the cost of operations incurred from their share of gross production.
The new 20-year contract terms for the Basin PSC and Island PSC will commence after the expiry of their current terms, on Oct. 15, 2020 and April 22, 2020 respectively. A signature bonus of US$1 million is required to be paid by the participants of the respective New PSCs.
In addition, the participants in the New PSCs will be committed to carry out an agreed set of firm work programs during the first five contract years which include geological and geophysical studies, seismic acquisition and processing, exploration well drillings and pilot enhanced oil recovery projects.
The financial commitment for the firm work programs are $61.2 million and $36.3 million for the Basin and Island blocks respectively under the New PSCs. It should be noted that final award of the New PSCs to the company and its subsidiaries is conditional upon agreement of the terms and signing of the New PSCs.
Francis added, the Group currently holds a majority 60 percent participating interest in and operates the Basin PSC and holds a non-operated 33.21 percent participating interest in the adjacent Island PSC. The two PSCs currently produce approximately 3,940 barrels of oil equivalent per day net to the Group’s participating interests.
RH Petrogas  is listed on the mainboard of the Singapore Stock Exchange and is focused on exploration, development and production of oil and gas deposits. RHP has producing, development and exploration blocks in Indonesia, China and Malaysia.
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