Publications

Indonesia's oil and gas cost recovery audit and approval was considered difficult and time-consuming, resulting in a fiscal change to the Gross Split Production Sharing Contract (GS PSC) in 2017. A study by Wood Mackenzie (2020) showed that the change led to a reduction of Indonesia's fiscal attractiveness due to the change away from the cost recovery PSC approach. Moreover, data shows that 15 of 26 Gross Split exploitation PSCs have been provided with additional profit share incentives to boost the project's economic value, while the remaining 11 are also considering proposing incentives or contract form changes. In 2021, the Indonesian Government announced a plan to achieve 1 MMBOPD and 12 BSCFD production by 2030. Achieving this target requires better fiscal planning to create a more favorable investment environment.

To evaluate the revision of the gross split fiscal, Effective Royalty Rate (ERR) from other countries fiscal are compared to the current Indonesia GS PSC’s ERR. Contractors' profit-sharing targets on gross split contracts is also simulated to determine Access to Gross Revenue (AGR) target for a more competitive contractor share. Production sharing components are simplified by analyzing the main components that form the most significant share adjustment in the gross split contract. Statistical methods are used to determine parameter values that better reflect the current situation from field data for the last five years. The distribution of questionnaires is also used to map implementation problems of gross split PSC.

The New Simplified Gross Split PSC is expected to refine the gross revenue sharing fiscal system PSC so that it is more economically attractive and comparable to the previous PSC, which uses an operational cost recovery mechanism. This results in a GS PSC as a competitive alternative to Cost Recovery PSC (CR PSC) for contractors selecting a contract type that better fits their risk profile. This new ministerial regulation is also intended to open up flexibility for contractors to choose and propose changes to the form and terms of contracts. This can be carried out through requirements for increasing production and nominal state revenue targets and through comprehensive evaluation processes with reciprocal additional work commitments in the form of new exploration / exploitation investment activities in the block.