ONWJ block to lead gross split scheme

The maiden implementation of a gross-split sliding scale on the renewed Offshore Northwest Java (ONWJ) oil and gas field may boost the state’s coffers, but will cost state-owned oil and gas firm

Pertamina a chunk of cash. On Wednesday, the ONWJ block contract with Pertamina was renewed for a time frame of 20 years under the government brand new gross-split scheme, which will force the company to boost its efficiency programs as the state will no longer reimburse exploitation costs.

Under the previous cost-recovery scheme, investors were entitled to 15 percent of the profits of an oil project and 30 percent of a gas project, with the government scooping up the rest.

However, Pertamina will only be entitled to 57.5 percent of the oil profits and 62.5 percent of the gas profits under the new scheme. Although it seems that Pertamina will get a bigger slice of the cake, president director Dwi Soetjipto said its portion was not as substantial as it had initially sought as the company would have to bear the burden of all exploitation costs until 2037.

“We have discussed this in depth and it certainly is a challenge for operators to increase eificiency as a whole. Honestly, the split is still not enough, but we hope that we can cover it by increasing efficiency. At least 5 percent of the old costs must be covered by efhciencies,” he said during a press conference on Wednesday.

According to Ministerial Decree No. 8/2017 on gross split, contractors will not receive reimbursement from the government and the profit scheme will “slide” up and down depending on several factors. Some of the factors include the status of the Held, location, reservoir depth, reservoir type, amount of carbon dioxide, use of local industrial content and stage of production.

These variables will be added to or subtracted from the base calculation, which the new regulation has set at a minimum 43 percent for companies in oil projects and 48 percent in gas projects. Data from the Energy and Mineral Resources Ministry show that ONWJ’s oil reserves stood at 309.8 million barrels and its gas reserves amounted to 1,114.9 billion cubic feet (bcf). 

Its oil production last November amounted to 37,301 barrels of oil per day (bopd) and gas production totaled 158.2 million standard cubic feet per day (mmscfd). Investment in the ONWJ Held is expected to reach US$82.3.million in the first three years, while a total investment of $8.5 billion will be needed in the next two decades with a gross revenue of $14.8 billion.

Meanwhile, Energy and Mineral Resources Minister Ignasius Jonan said the new scheme was a breakthrough. “The contractors will be responsible for all costs, so the state budget is no longer burdened,” he said.

However, despite the government’s enthusiasm for the new gross-split scheme, ReforMiner Institute researcher Pri Agung Rakhmanto questioned whether investors would greet the new scheme with the same gusto. Pri Agung said the new scheme was more suitable for oil and gas Helds already in production, citing low risks compared to fields still in the exploration stage. “Investors may be interested in the new scheme, but there are always other factors apart from numbers that must be calculated,” he said.

Jakarta Post, Page-13, Thursday, Jan, 19, 2017