Oil & Gas Sector: Indonesia to Revise Gross Split Scheme Soon
Indonesia's Energy and Mineral Resources Ministry will revise Energy Regulation No. 8/2017 on the gross split scheme. It was decided to revise this relatively new regulation after an evaluation was conducted that included input from oil and gas contractors. Deputy Energy Minister Arcandra Tahar announced the revision earlier this week.
In late 2016 the Indonesian government unveiled the gross split scheme (which replaced the cost recovery scheme at the start of 2017) as it is regarded a fairer system for both the oil and gas contractor and the Indonesian government, and will lead to more efficient operations in oil and gas exploration and production as contractors will be more careful when spending funds. In the new gross profit sharing system the Indonesian government will generate earnings from (part of) gross profit as well as tax revenue from contractors' activities in the upstream oil and gas sector, without needing to reimburse exploration and production costs to contractors (as was the case under the preceding cost recovery scheme).
In the original gross split scheme the government determined that gross profit would be split at a ratio of 48 percent (contractor), 52 percent (government) for gas. Meanwhile, the base split for gross profit in the oil sector was determined at 43 percent (contractor), 57 percent (government).
However, considering the government will not reimburse any exploration or production costs, this split is considered unattractive by oil and gas companies. It is worth noting that over the past decades billions of US dollars were spent by private oil and gas companies in Indonesia, in vain, trying to find oil and gas sources that would be suitable for commercial production. In addition, Indonesia's unconducive investment climate (plagued by a high degree of legal uncertainty and red tape) reduces investors' appetite for costly investment further.
Therefore, the government will now offer more variables in terms of profit sharing depending on the status of the working area, the location of the field, the depth of the reservoir, the availability of supporting infrastructure, the level of CO2 and H2S, the stage of production, and the level of domestic components used in the project.
Another factor that will be included in the determination of the exact gross profit sharing is the crude oil price movement (evaluated each month) as well as the production level at the field. More variables will be added.
The Energy Ministry is currently studying the revisions, while inviting stakeholders and experts in the oil and gas sector to seek their opinions.
Investment Realization in Indonesia's Oil & Gas Sector:
(in bln USD)
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