Regulation on contract systems to be issued this month
Saturday, September 19 2015 - 03:37 AM WIB
Director General of Oil and Gas IGN Wiratmaja said in a statement that the regulation will allow the contractors to choose one from three options of contracts: sliding scale, gross split and PSC.
?The regulation is now only waiting for approval from the minister. All technical matters have been resolved,? Wiratmaja said on Thursday on the sidelines of a hearing with the House of Representatives? Commission VII which oversees energy affairs, according to the statement.
The government hopes the regulation will drive the exploration and development of coal bed methane (CBM) and shale oil and gas, he said, adding that contractors are allowed to choose other types of contract besides PSC under Oil and Gas Law No. 22/2001.
The current PSC scheme splits revenue between the government and contractors based on the net revenue. A gross split contract is based on gross revenue. Meanwhile, a sliding scale scheme delivers a larger percentage of production to the contractors in the beginning of production. Once the contractors have recovered almost all of their investment, the government will receive a larger percentage of production.
Wiratmaja said the gross split and sliding scale contract systems are applied in various countries, including Australia, where oil and gas explorations in deepwater areas have been growing thanks to the application of both types of contract.
He said the freedom to choose from the three different type of contract will be given to investors bidding for new blocks. However the contractors of old blocks are also allowed to do so on certain conditions. ?There will be a transition clause for old blocks. However, contractors of old blocks which have thus far done nothing ? they are only paper companies ? will be meted out different treatment, compared to those who have carried out drilling,? he said.
The government believes Indonesia has huge CBM and shale gas resources and dozens of contracts have been issued to explore the resources. However, most of the contractors have produced nothing so far, even stopped their drilling activities. Analysts blamed the situation to the PSC system applied in the CBM and shale contracts.
Editing by Johannes Simbolon