Govt will not cap cost recovery funds for oil, gas producers

The government is still drafting a ruling to provide a clear-cut guide in the calculation of operating costs of oil and gas production sharing contractors that could be refunded.

Speaking in Jakarta on Wednesday Energy and Mineral Resources Minister Darwin Zahedy Saleh said that the new regulation would also ensure that the cost recovery funds would not be capped.

According to him, the finance minister whose office was in charge in providing the funds for the cost recovery said that there would be no limitation in the cost recovery funds. ?We will soon discuss the issue with the House of Representatives,? he was quoted as saying by Kompas daily.

The government?s plan to cap the cost recovery funds has worried many investors in the oil and gas industry. Analysts believe that the lack of interest in the number of oil and gas blocks tendered by the government recently has been partly caused by the uncertainty related to the cost recovery funds.

Darwin, however, said that oil and gas production sharing contractors should be honest in calculating the overhead costs that could be refunded under the production sharing scheme.

Oil and gas companies operate in the country under the so called production sharing contracts. Under this scheme, they are allowed to ask for refund for the costs incurred in exploration and production activities.

However, some production sharing contractors (PSCs) have been accused of taking advantage in the cost recovery policy by including non-overhead spending into refundable cost items. (*)