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Indonesia plans shake-up of upstream oil and gas contracts
December 19, 2016 / 12:25 PM / a year ago

Indonesia plans shake-up of upstream oil and gas contracts

JAKARTA, Dec 19 (Reuters) - Indonesia plans to change future production sharing contracts in its upstream oil and gas sector so that contractors shoulder the cost of exploration and production, rather than be reimbursed by the government.

Energy Minister Ignasius Jonan said on Monday that the government plans to issue a new regulation in January so that such costs would be reflected by a more flexible split in revenue from production.

Such a system, instead of the existing cost-recovery system, would be fairer and more efficient, and likely to increase proven reserves, he said.

Big global resource firms such as Chevron, Exxon Mobil> and Total operate in Indonesia, but the country has struggled to attract fresh investment and to develop new fields.

Indonesia’s chamber of commerce said it was waiting for more clarity on the plans and the Indonesian Petroleum Association said it was still in discussions with the government.

“It will be applied for future PSCs (production sharing contracts), and it will not disturb existing PSCs,” Jonan told a conference.

Arcandra Tahar, the deputy energy minister, said Indonesia would determine a base split in revenue between the government and contractors, but this could be tweaked to act as an incentive for companies.

The split could vary according to criteria such as whether a field being exploited was offshore or lay in deep water making work on it more difficult and expensive.

In addition, it could change depending on the amount of local content used by a contractor in a project.

Indonesia’s crude oil output peaked at around 1.7 million barrels per day in the mid-1990s. But with few significant oil discoveries in Western Indonesia in the past 10 years, production has fallen to roughly half that as old fields have matured and died.

The industry is a vital part of the Indonesian economy, but its contribution to state revenue has dropped from around 25 percent in 2006 to an expected 3.4 percent this year, according to data compiled by consulting firm PricewaterhouseCoopers. (Reporting by Wilda Asmarini; Editing by Susan Fenton)

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