Indonesia overhauls system for future oil, gas contracts

Indonesia overhauls system for future oil, gas contracts

Indonesia has adopted a new scheme for future oil and gas production sharing
deals so that contractors shoulder the cost of exploration and production,
rather than being reimbursed by the government.

Under the shake-up, flagged late last year, contractors will retain a bigger
portion of the oil and gas they recover in return for paying more upfront
costs.

The shift, designed to ease the burden on Jakarta's budget, will only apply
to new contracts and will not disrupt existing agreements using the current
cost-recovery system.

Big global firms such as Chevron, Exxon Mobil and Total operate in
Indonesia, but the country has struggled to attract fresh investment and to
develop new fields.

Speaking at a press conference late on Wednesday, Energy Minister Ignasius
Jonan said the base split for gas production would be 52 per cent for the
government, with the rest going to a contractor. For oil output, the
government will get 57 per cent.

Contractors could be awarded a bigger share of production if conditions make
working on a field more difficult and expensive, he added.

Under the previous system, the government received a share of 70 per cent
for gas and 85 per cent for oil.

The first contract under the new scheme was signed on Wednesday with PT
Pertamina for the Offshore North West Java (ONWJ) block, in which the
government gets 37.5 per cent of any gas and 42.5 per cent of oil.

"This gross split (mechanism) means all expenses would be the responsibility
of the contractor, no longer burdening the state budget," Mr Jonan told
reporters.

Pertamina's chief executive Dwi Soetjipto said the increased split for the
ONWJ block would not cover its costs, but that he hoped to retrieve them by
"making efforts on efficiency".

Last year, oil and gas contractors operating in Indonesia asked for more
than US$11 billion reimbursement for costs, much bigger than the US$8.4
billion initially planned.

Indonesia's crude oil output peaked at around 1.7 million barrels per day in
the mid-1990s. But with few significant oil discoveries in Western Indonesia
in the past 10 years, production has fallen to roughly half that as old
fields have matured and died.

The industry is a vital part of the Indonesian economy, but its contribution
to state revenue has dropped from around 25 per cent in 2006 to an expected
3.4 per cent this year, according to data compiled by consulting firm
PricewaterhouseCoopers.

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Link to Original Article:
http://www.businesstimes.com.sg/energy-commodities/indonesia-overhauls-syste
m-for-future-oil-gas-contracts

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com