Publications

In spite of the many difficulties that one may encounter in developing a coalbed methane (CBM) project in Indonesia it must be noted that one of the most important aspects of the project is designing an economic scheme to govern the shares between the Government of Indonesia (GoI) and the contractors. In Indonesia, CBM development has already been regulated under the Oil and Gas Law and consequently the CBM economic scheme is a Production Sharing Contract (PSC). CBM is natural gas produced from underground coal seams. As such, it can be a relatively clean and efficient fuel upon which the nation can rely for its future energy needs. The explosive growth of CBM development poses unique challenges, many of which are different in kind and magnitude from traditional oil and gas development. In many cases, the proximity of CBM development to urban and rural development means that the impacts are of a higher economic, social, and political profile and affect more of the population than traditional oil and gas development. These impacts include, but are not limited to, the vast number of development wells, the construction of a large number of improved and unimproved roads, compressor stations, gathering points, water treatment facilities, and water disposal facilities. These issues, particularly the development of wells and the water produced, can be a major part of the capital and operating expense in CBM development, and this will vary from one CBM project to another. As a consequence, the designing of a mutually acceptable proportional economic split between the GoI and contractors becomes an issue of critical importance. This paper proposes an alternative approach to develop an economic scheme under Indonesian Production Sharing Contract law. The proposed scheme will balance the share portion between the GoI and contractors without sacrificing the contractors internal rate of return (IRR). If contractors manage to execute the project at a rate that is more profitable than the plan, then the GoI share increase will be higher than the contractors. However, if the project is executed in such a manner that it is less profitable than planned, then the GoI share will decrease and be equal to that of the contractors.