Government to apply gross split scheme in new ONWJ contract

The government has proposed to apply a gross split scheme in the upcoming new Offshore North West Java (ONWJ) block contract, replacing the current production sharing contract (PSC) mechanism, Kontan reported on Monday.

As has been previously reported, the government has decided to transfer the entire ownership over the block to state-owned oil and gas firm PT Pertamina when the current contract expires on January 18, 2017.

Kontan quoted Denie S. Tampubolon, Senior Vice President for Upstream Business Development at Pertamina, as saying that the company is still in talks with the government over the terms and conditions of the new contract including the proposed gross split scheme. ?This (proposed gross split scheme) is among of the things that are still being discussed,? he said.

Minister of Energy and Mineral Resources Ignasius Jonan said last week that the current production sharing contract (PSC) scheme between the government and oil and gas contractors operating in the country will be replaced with a gross split mechanism.

Ignasius said that by adopting the gross split scheme, there will no longer be an obligation of the government to cover the expenses of oil and gas contractors through the so-called cost recovery mechanism. As such, the state budget will no longer have to be burdened with the huge cost recovery, and finally ends the lingering debate over the cost recovery, one of the components of the PSC scheme, which has been introduced by the country since 1966.

Pertamina currently holds a 58.27 percent interest in ONWJ block in West Java as operator, while Kuwait Foreign Petroleum Exploration Company (Kufpec) owns 5 percent interest, and PT Energi Mega Persada (EMP) has more than 36 percent. (*)