Jakarta unveils new oil contract formula

Under the shakeup, flagged late last year, contractors will shoulder costs on new oil, gas deals

Indonesia has adopted a new scheme for future oil and gas production sharing deals so that contractors shoulder the cost of exploration and production, rather than being reimbursed by the government.

Under the shake-up, flagged late last year, contractors will retain a bigger portion of the oil and gas they recover in return for paying more upfront costs.

The shift, designed to ease the burden on Jakarta’s budget, will only apply to new contracts and will not disrupt existing agreements using the current cost-recovery system.

Big global firms such as Chevron, ExxonMobil and Total operate in Indonesia, but the country has struggled to attract fresh investment and to develop new fields.

Speaking at a press conference late on Wednesday, Energy Minister Ignasius Jonan said the base split for gas production would be 52 per cent for the government, with the rest going to a contractor. For oil output, the government will get 57 per cent.

Bigger share

Contractors could be awarded a bigger share of production if conditions make working on a field more difficult and expensive, he added.

Under the previous system, the government received a share of 70 per cent for gas and 85 per cent for oil.

The first contract under the new scheme was signed on Wednesday with PT Pertamina for the Offshore North West Java (ONWJ) block, in which the government gets 37.5 per cent of any gas and 42.5 per cent of oil.

“This gross split means all (mechanism) expenses would be the responsibility of the contractor, no longer burdening the state budget,” Jonan told reporters.

Pertamina’s chief executive Dwi Soetjipto said the increased split for the ONWJ block would not cover its costs, but that he hoped to retrieve them by “making efforts on efficiency”.

Reimbursement sought

Last year, oil and gas contractors operating in Indonesia asked for more than $11 billion (Dh40.40 billion) reimbursement for costs, much bigger than the $8.4 billion initially planned.

Indonesia’s crude oil output peaked at around 1.7 million barrels per day in the mid-1990s. But with few significant oil discoveries in Western Indonesia in the past 10 years, production has fallen to roughly half that as old fields have matured and died.

The industry is a vital part of the Indonesian economy, but its contribution to state revenue has dropped from around 25 per cent in 2006 to an expected 3.4 per cent this year, according to data compiled by consulting firm PricewaterhouseCoopers.