A revision of the unpopular gross-split scheme has been met with positive reviews from upstream oil and gas business players, but it still leaves the sector’s future uncertain.
The gross-split scheme, a new breed of production-sharing regime (PSC), has been constantly criticized since it was introduced earlier this year for not being economically feasible and too heavy a burden for contractors.
The scheme’s revision, under Energy and Mineral Resources Ministerial Decree No. 52/2017, was signed by Minister Ignasius Jonan last Tuesday and with many additions intended to fulfill investors’ requirements to continue their projects in the country under the scheme.
The Indonesian Petroleum Association (IPA) executive director, Marjolijn Wajong, said the changes in the gross-split scheme were positive as they improved the economic feasibility of upstream projects, and also provided legal and fiscal certainty
“The IPA sees many positive changes in [the governments] efforts to increase the competitiveness of Indonesia’s oil and gas industry with the revision of the gross-split ministerial decree that has just been issued,” she said on Monday.
The scheme was designed to eventually replace the current cost-recovery scheme, which requires the government to reimburse the exploration and exploitation activities of investors.
Unlike cost recovery, the profit split between the government and contractors is decided up front based on the characteristics of an oil or gas working area.
Although only one working area, Offshore Northwest Java (ONWJ), has implemented the gross split, the IPA has been vocal about the scheme’s shortcomings since it was issued.
PT Pertamina Hulu Energi (PHE), a subsidiary of state owned firm Pertamina and operator of ONWJ, has also gone back and forth to the Energy and Mineral Resources Ministry to request a higher profit split under the gross split.
In the latest revision, the starting point for contractors remains at 57 percent and 52 percent for oil and gas respectively with the remainder going to the government. Contractors at the second plan of development (POD) stage will now get an additional 3 percent.
Moreover, the government will not deduct 5 percent from the contractor’s share if the latter continues operations in a terminated working area without submitting a POD.
The government has also added new components that allow an additional 2 percent split for contractors working in frontier offshore regions and 4 percent for frontier onshore regions. It was previously set at 2 percent for both offshore and onshore regions with little infrastructure.
Contractors will also now receive either 6 percent or 10 percent more for working areas at the secondary and tertiary production stages, double the amount in the previous iteration.
Furthermore, the government has changed the calculation for the portion obtained by the companies from a rise in oil prices, and has also added gas prices to the mix. Most significantly, however, is the minister’s ability to use his discretion to add or subtract from a contractorssplit.
Although the changes have been deemed significant, Marjolijn acknowledged that there were still some improvements to be made. The IPA has already recommended that the government make the gross-split scheme optional rather than compulsory for investors.
“In the end, contractors’ investment decisions will be based on their own investment portfolio and other strategic considerations,” she said.
ReforMinerInstitute researcher Pri Agung Rakhmanto said the revised gross split might not be so, sweet despite greater economic feasibility.
According to Pri Agung, the minister’s discretion in determining the split could lead to business uncertainty, and the gross split in general remained a disadvantage for new contracts at the exploration stage.
“The exploration stage is such a gamble that no one can say for sure that [investors] will be interested in [the gross split], which is a shame because the country really needs as much exploration as possible,” he said, adding that the governments needs were equally as important as those of investors.
Official data show that the amount of proven crude oil reserves in the country had dropped to 3.3 billion barrels at the end of last year from 3.69 billion in 2013. Moreover, proven gas reserves only amounted to 101 trillion cubic feet (tcf) in 2016 from 102 tcf three years previously.
Despite evidence of the urgency to find additional proven reserves, investment in exploration activities continues to experience a downward spiral. Last year, only US$8O0 million was invested, compared to $1.3 billion in 2012.
Pri Agung noted that while the gross split was revised in favor of investors, the fact that the government continued to issue and revise the regulations would not inspire much confidence for the future.
Jakarta Post, Page-19, Tuesday, Sept 5, 2017
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