ONWJ Contract Signed Soon

  

At present, the shares of ONWJ Block by PT Pertamina Hulu Energi ONWJ 58.28%, PT Energi Mega Persada Tbk. 36.72%, and Kuwait's Foreign Petroleum Exploration Company (Kufpec) 5%. 

    However, the government has decided to take over the entire management of the oil and gas block so that 100% of ONWJ shares will become the property of PT Pertamina starting January 19, 2017. Currently, the production sharing contract / PSC scheme that applies in ONWJ uses a cost recovery scheme.

However, in the new contract model, the government will tend to use the gross split PSC model or gross profit sharing without any cost recovery (refundable oil and gas production costs).

PT Pertamina Upstream Business Development Senior Vice President Denie S. Tampubolon said the cooperation contract for the oil and gas block located on the north coast of West Java will expire on January 18, 2017. He hopes that the new contract can be signed before the deadline. If the government wants to implement a production sharing contract (PSC) with a gross split scheme in the new contract, the government needs to sign new agreements on the block more quickly.

The gross split PSC scheme does not take into account costs that can be returned or cost recovery. In the contract model, revenue from direct oil sales is shared between the government and the contractor. Meanwhile, PSC cost recovery that has been applied so far is calculated based on revenues from oil sales and then reduced income tax (PPh), the volume taken by the government each calendar year according to the agreement, and reduced cost recovery.

After deducting these costs, the profits from the block are shared between the government and the contractor in accordance with the fiscal terms and conditions stated in the contract. 

    Denie said the gross split PSC scheme was still being discussed internally within Pertamina. The government is still designing regulations governing the adoption of gross split PSCs. He hopes that the application of production sharing without cost recovery does not affect investment and production activities.

the ONWJ Block

Moreover, there is no transfer of management in the ONWJ Block because the operator is still the same, namely PT Pertamina Hulu Energi ONWJ. Oil and gas production-ready to sell or lift from the ONWJ Block in January-November 2016 reached 133 MMscfd of gas and oil at 35,900 BPD. Oil production from the block next year is targeted at 36,500 BPD. Regarding partners in managing the block, the same pattern will be applied as in the Mahakam Block.

In the new Mahakam Block contract, the government handed over management after the 2018 contract began to Pertamina. Thus, the participation of the ONWJ Block is 100% controlled by the government. After the government owns 100% shares through Pertamina, the oil and gas BUMN has the right to invite existing contractors to get involved. 

     Denie said he would offer participating shares to Energi Mega Persada (ENRG) on a new contract. Deputy Minister of Energy and Mineral Resources (ESDM) Arcandra Tahar said the implementation of the gross split PSC in the management of the ONWJ Block was still under discussion.

He said the application of the gross split was aimed at avoiding complicated business mechanisms such as budget submissions as well as the procurement process that had to go through the approval of the Special Task Force for Upstream Oil and Gas Business (SKK Migas). 

    During this time, some of the costs that contractors must incur in an oil and gas block have several uses that can be returned through cost recovery. House of Representatives Commission VII member Satya W Yudha said, the majority of the implementation of PSC cost recovery, the government only gained about 40%.

Bisnis Indonesia, Page-30, Wednesday, Dec 7,2016