Indonesia launches new PSC regime for E&P firms

The Indonesian government has announced the beginning of a new production-sharing contract (PSC) regime that stipulates that exploration and production companies pay more of the overall costs of development and production, but gain a greater share of revenue.

The proposed regime will apply only to new contracts. Existing contracts continue to use the former cost-recovery scheme.

Under the new rules, the Indonesian government will take 57% of profits from oil sales and 52% of natural gas sales. This will leave PSC contract holders with 43% and 48%, respectively, of revenue. However, Energy Minister Ignasius Jonan said the figures can be altered for more difficult and complex projects so that profit-sharing is more attractive to E&P firms.

In return, oil and gas companies will pay all exploration and development costs and will not be offered any reimbursement. Under the older scheme, the government took a 70% share for gas and 85% for oil.

In 2016 companies operating in Indonesia claimed for more than $11 billion in reimbursement for costs, a figure well above the expected $8.4 billion.

Behind the new scheme is the fact that Indonesia aims to increase its oil and gas production and wants to attract new investment for its oil and gas fields in the face of predicted significant production declines by 2020.

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