Publications

As the main asset in a PSC is exhausted, the PSC operator is left with the smaller prospects of marginal size and more challenging or technologically harder to exploit reservoirs. Without any major breakthrough on fiscal terms and technologies, those remaining portfolios will likely remain under-exploited until the PSC expires or the assets are sold to another operator. This could result in a lost opportunity both for the operator and the government. The potential for lost opportunities are more pronounced when the PSC contract is located in a geopolitically sensitive area, such as the Natuna Sea, where overlapping territorial boundaries come into play. Natuna is very important for Indonesia. Oil & gas exploration and production activity in the area generate revenue for the government and help to protect against other countries’ claims to the territory. However, the limited size of the prize, the remoteness of the location and more importantly the rigidity of the existing fiscal terms limit the operator’s abilities to move this remaining portfolio beyond current firm plans. This paper evaluates the potential impact of changes to existing PSC fiscal terms on contractor appetites to continue to invest in exploration and development of marginal prospects and field discoveries using the example of the producing PSC in the West Natuna Sea. This paper demonstrates that a simplified exploration and development process as well as appropriate incentives and adjustable fiscal terms will likely encourage an operator to continue to invest as the balance of reward and risk becomes more favourable. The continuation of the development of and production from remaining stranded small oil/gas fields will prolong the economic life of the area thereby providing economic benefits to the nation. Keywords: Fiscal Term, Production Sharing Contract (PSC), Incentives, Marginal Fields.