Oil contract rules change

AFTER months of uncertainty, Indonesia has formally announced a new production sharing contract regime that will see oilers wear more of the overall costs but share in more of the revenue, which the government hopes will boost investment.

Oil contract rules change Energy Minister Ignasius Jonan

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The shift, designed to ease the burden on Jakarta's budget, will only apply to new contracts and will not disrupt existing agreements, which will still use the older cost-recovery regime.
The move that was flagged last year was announced his week by Indonesian Energy Minister Ignasius Jonan.
Under the rules the government will take 57% of the profits from oil sales and 52% of gas sales, leaving PSC holders with 43% and 48% of the revenue, however the numbers can be altered on more difficult and complex projects to make the profit sharing more attractive for oil and gas companies.
Under the previous system, the government received a share of 70% for gas and 85% for oil.
In return for a higher share of profit oil, oil and gas companies will now wear all of the costs and the government will not offer any reimbursement.
Last year, oil and gas contractors operating in Indonesia asked for more than $US11 billion reimbursement for costs, above the expected $8.4 billion.
Indonesia is keen to increase its oil and gas production, and wants to attract new investment for its oil fields in the face of what Wood Mackenzie suggests is production that will plunge by 270,000bopd by 2020, as part of a wider decline in the Asia-Pacific of 1MMbopsd by 2020.
China will see the biggest drop by 47% or 470,000bopd, followed by Indonesia at 27% or 27,000 bopd, Thailand and India at 8% or 80,000bopd.
Malaysia and New Zealand will also see significant declines. 
The overall drop in production was based on a lack of new discoveries, and an increase in gas discoveries since the 1990s. 
Indonesian production peaked at around 1.7MMbopd in the 1990s.
While Pertamina is aiming to boost its domestic production, other big oilers are selling up or losing stakes in projects.
Pertamina was the first company to sign one of the new PSCs, signing an agreement for the Offshore North West Java block, in which the government gets 37.5% of any gas and 42.5% of oil.
The state-owned oiler said it would not be able to cover its costs unless it made significant efficiency gains. 
Jonan, who was appointed as the energy and mineral resources minister in October, the fourth person to hold that role since July 2016, also moved this week to ease regulations concerning the controversial ban on exports of metal ore and other mineral concentrates that were first announced in 2009 and partially came into force in 2014. 
The new rules allowed the resumption of nickel and bauxite sales for five years if miners make progress towards developing a smelter. 
Also this week Jonan was named in a public works bribery trial related to his time as transport minister. 


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