Publications

The first Coal Bed Methane (CBM) Production Sharing Contract (PSC) in Indonesia was signed in 2008. Since then, a total of 54 CBM PSCs have been awarded. However, little progress has been made in the CBM blocks. One of the issues that the Contractors are facing is the pilot exploration wells drilled thus far have not met the minimum economic expectations. The original PSC scheme was not flexible enough to allow Contractors to still profit on a lower gas production rate. In November 2015, the Ministry of Energy and Mineral Resources issued the Minister Decree No. 38/2015 regarding alternative PSC schemes between the Government and Contractors in order to stimulate investment in the unconventional oil and gas industry, including CBM. This Minister Decree offered three PSC options, which are Conventional PSC, Sliding Scale PSC and Gross Sliding Scale PSC. This paper simulates the three PSC options and evaluates the effect on the economic value of CBM projects in Indonesia. This simulation should provide a new perspective for the Contractors on the potential investment benefits in Indonesia’s CBM project. The Sliding Scale PSC and Gross Sliding Scale PSC models provide higher potential revenue than Indonesia’s conventional PSC. The advantage of the Gross Sliding Scale PSC compared to the Sliding Scale PSC and the Conventional PSC is in the flexibility of procurement bureaucracy, which could reduce procurement time frame and resulted in Capex efficiency by at least 25%.