Publications

Indonesia has abundant natural oil and gas resources, especially in the South Sumatra basin. The basin has a proven petroleum system and has been explored and exploited for many years. Even though the basin has been produced and exploited, the remaining reserves still provide promising hope for a sustainable energy supply in Indonesia. Usually, in the basin that has a lower risk of finding and extracting the hydrocarbon, with a well-developed infrastructure and a mature gas market, the fiscal terms won’t be as attractive as in the basin with high risk as reflected in the lower profit split for the Contractor. Special consideration needs to apply for the exploitation block in the asset’s late life, as we know there are still opportunities to extract the hydrocarbon toward the end of field production life. Still, these are sometimes not easy and economically feasible to do. Even with cost optimization efforts and operating efficiencies done by the Contractor, the production may decline more rapidly than the cost reduction. This phenomenon triggers the Block’s economic limit before its PSC expiry. One possible solution to the problem is through incentives given to the Contractor so that Contractor may be empowered and granted incentives beyond the normal PSC fiscal terms which potentially enables to improve the economic limit of the asset. The incentives should also encourage cost savings by the Contractor through prudent cost management. Because of this, we also have the opportunity to monetize the stranded hydrocarbon from the economic limit until the end of the PSC expiry. This paper investigates what effort needs to be done by the Contractor and the required fiscal incentives to maintain positive cash flow until the end of PSC.