New incentives: Fuel storage tanks in Tanjung Priok Port, Jakarta. The country is trying to exploit its oil and gas resources at a more rapid rate. — Bloomberg
JAKARTA: The government hopes new rules for gross-split production-sharing contracts (PSC) will lure more oil and gas investment to Indonesia, but experts say it may not be enough to significantly improve investment in the sector.
Energy and Mineral Resources Ministry Regulation No. 13/2024, which took effect on Aug 12, aims to draw more investment to the country by simplifying contractors’ evaluation components in PSCs and increasing their take in oil and gas projects.
Moshe Rizal, who heads the investment committee of the Association of Oil and Gas Companies (Aspermigas), said the main reason why the previous gross-split rules were insufficiently attractive for exploration activities was the fact that contractors only found out about the exact split when they reached the plan of development (PoD) stage.
Until then, contractors did not know how large a share of the gross production they would get.
The problem was that the contracts between contractors and the government, particularly with regard to determining the split, were based on a ministerial regulation, he told The Jakarta Post last Tuesday, adding that this would make potential investors wary of future changes made by different ministries.
“What if the minister changes? What happens if the government changes? So, there’s still uncertainty here,” he said, adding that, “certainty is the benchmark for investors.
They will calculate every possibility. For example, in this case, I expect they will question why the rule is in the form of a ministerial regulation and not a law.
“We appreciate the government’s efforts to improve. The new rules are helpful, but are they helpful enough to the point where investors will choose to invest in Indonesia rather than in other countries? Not necessarily,” Moshe said.
Global oil demand will peak by 2029 and begin to contract the following year, while the United States and other non-Opec countries add to supply, the International Energy Agency said on June 12.
That projection meant Indonesia had to be quicker and more flexible in catching up with the global trend, Moshe said.
“We are competing with other countries to find investors, not to mention that the capital for oil and gas investment in South-East Asia is declining.”
Indonesian Petroleum Association executive director Marjolijn Wajong said that the association welcomed the recently signed regulation but needed to discuss the implications of the new rules with the relevant committees internally.
The new gross-split regulation applies to new contracts, according to the Energy and Mineral Resources Ministry’s upstream oil and gas activities director, Ariana Soemanto.
“However, existing gross-split contracts that have not received approval for the first plan of development or PoD-1 could also submit a request to change their contracts to the new gross-split scheme,” he said in a statement issued last Thursday.
Previously, Ariana said the new regulation reduced contractors’ profit-sharing components from 13 to five to make the rules “simpler” and served as a legal basis to increase contractors’ take in oil and gas projects.
“Under the new gross split, contractors can take up to 75% to 95%, while in the old gross-split contracts, most contractors had to submit an additional split proposal to the government, which created uncertainty for contractors,” he said.
Ariana expected the new rules to be more appealing for unconventional oil and gas projects, considering that contractors could get a direct split of up to 95%.
He went on to say that Rokan Block operator Pertamina Hulu Rokan, an upstream subsidiary of state-owned oil and gas giant Pertamina, “might be interested in the new rules” given their unconventional oil and gas projects in the block.
A ministerial decree to specify details of the split was “currently in the final stages”, Ariana said in the same statement.
The higher profit share for contractors made new oil and gas block auctions “much more interesting”, Ariana said.
“The government is not idle but continues to take steps to make investment more attractive.
“The new gross split will certainly provide a positive signal for investment, because it’s formulated by taking into account investors’ input as well.
“This is proof that the government is adaptive to new investments to encourage unconventional oil and gas production,” he added. — The Jakarta Post/ANN
