SKK Migas optimistic gross split policy to attract investors

Petromindo|Thomas

Upstream oil and gas authority SKK Migas is optimistic that the recently revised gross split policy will attract fresh investment in the country?s upstream oil and gas sector, Kontan reported on Saturday.

The paper quoted SKK Migas Chairman Amien Sunaryadi as saying that growing number of oil and gas contractors will apply the gross split mechanism through 2025.

He said that this year, there will be up to 10 new production sharing contracts that will apply the gross split mechanism. ?We hope that this year, there will be more contractors applying the gross split scheme, about 5-10 contracts, and there will be more through 2025,? he said, adding that until 2025, a total of 33 contracts which will switch from cost recovery mechanism to gross split mechanism.

The government introduced earlier this year the new gross split policy, to replace the existing cost recovery mechanism. Under the new policy, the government will no longer reimburse the investment and operating costs of the contractors. In return, the contractors will get a higher production split. The new policy will be applied initially in new oil and gas contracts. PHE ONWJ was the first to apply the gross split mechanism in its contract over the ONWJ block, offshore West Java, when it was renewed by the government in January.

But many oil and gas contractors initially opposed the new policy saying it would undermine the economics of upstream projects in the country. This prompted Minister of Energy and Mineral Resources Ignasius Jonan to revise the policy and recently introduced a new Ministerial Regulation No 52/2017, which among others promise additional incentives for the contractors including extra output split.

The Indonesian Petroleum Association (IPA) welcomes the newly revised gross split policy, but urged the government to spell out the tax mechanism in the gross split policy. (*)