Pertamina Hulu Energi (PHE), a subsidiary of state-owned energy giant Pertamina, is seeking a revision to the new production-sharing scheme in the Offshore Northwest Java (ONWJ) oil and gas field, which it regards as uneconomical. Starting from Jan. 18, the ONWJ block contract has been using a gross-split scheme following its renewal for a 20 year-period.
Under the new model, PHE has borne sizeable up-front costs, expected to be compensated for through efficiency measures, as they cannot be reimbursed by the government as was the case in the previous, cost-recovery, system. In return, it can secure a greater amount of oil and gas output from production.
PHE president director R. Gunung Sardjono Hadi said it was preparing an assessment report about the new scheme’s application, set to be submitted to the government, in order to allow a change in the production sharing. “Our target is to finish the evaluation before the end of the first half of the year and then hand the report to Pertamina. Later, Pertamina will submit it to the government,” Gunung said on Wednesday.
With the gross-split scheme, which aims to ease pressure on the state budget, the profit split between the government and contractors will “slide” up and down depending on the block’s variables, including the location of the field and reservoir depth, and a progressive split that refers to global oil prices. Contractors, for instance, can obtain a larger portion of production when the conditions of exploration are difficult and while oil prices are high.
The base split for oil production will be at least 43 percent, while for gas production, it will be 48 percent at the minimum. The rest will be given to the government. Gunung expressed PHE’s objection to the scheme, pointing to the exclusion of exploration from the calculation of costs. “Exploration is not included within the variable split. [...] We want to propose including exploration activities in the variable split so that we can get another incentive,” he said.
Another objection pertains to various production costs amounting to US$450 million from the previous ONWJ operation before the contract’s extension. These costs were formerly covered in the cost-recovery scheme and could be reimbursed by the government. With the gross-split mechanism, compensation for such costs would be unclear, Gunung said. PHE has also found it hard to bear on its own the value-added tax (VAT) and property tax (PBB) covered in the old scheme. Moreover, volatility in global crude oil prices has forced PHE to tighten its belt.
The Indonesian Crude Price (ICP) averaged at around $39 per barrel in 2016, down from $49 per barrel in 2015. PHE, however, managed to carry out a number of efficiency measures last year, such as postponing most of its 2D and 3D seismic survey activities, enabling it to save around $431.2 million.
Even with those moves, the firm’s net profits still decreased by 6.4 percent to $191 million in the past year. Indonesian Resources Studies (IRESS) has previously voiced its concerns over the lack of incentives for exploration activities under the gross-split scheme.
All contractors are profit oriented. Hence, they may be reluctant to invest in exploration activities that have big risks with uncertain results,” said IRESS executive director Marwan Batubara. It would then be natural to see the country’s reserve replacement ratio (RRR) in oil and gas fall from previous years, he said.
For instance, the RRR the measurement of the operating performance of oil and gas exploration and production firms for oil stood at 139 percent in 2015, but had averaged only 53 percent in the past decade, according to the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas). Other data also show that insufficient attention has been paid to exploration.
President Joko “Jokowi” Widodo’s administration invested $ 10.43 billion in the upstream oil and gas industry from January to November 2016, but only 7 percent went to exploration activities.
Statistics from SKK Migas also reveal that Indonesia’s oil and gas working areas gradually fell by 19.5 percent from 2012 to 284 areas in 2016. The same bleak picture is also found in oil reserves as they dropped slightly to 3.6 billion stock 'tank barrels at the end of 2015, from 3.62 billion in 2014, as a result of a lack of discoveries within the past decade.
Jakarta Post, Page-13, Friday, March, 17, 2017
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