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Local Industry Welcomes Indonesia’s Revised Oil Sharing Deals

Struggling to attract international investors to revive its declining oil production, Indonesia has tweaked anew the production sharing contracts it introduced at the beginning of this year­—a move that is seen as “positive” for investors, the executive director of the Indonesian Petroleum Association (IPA) told Reuters.

In January this year, Indonesia launched the so-called Production Sharing Contract (PSC) scheme based upon the sharing of a “Gross Production Split”.

Under the PSC, Indonesia’s government would take a 57-percent split for oil, leaving the contractor 43 percent, and 52 percent for gas, with 48 percent for the contractor.

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The newer terms of the PSC keep the split, but increase the contractor share of production in the second and third stages of production, and if the oil and gas wells have higher sulfur content, according to the revisions announced by the energy ministry on Sunday.

Those changes are “positive”, IPA’s executive director Marjolijn Wajong told Reuters in a text message. The revisions could lead to improved economics of oil and gas blocks, “particularly during the initial stages of production,” Wajong said.

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In May this year, Indonesia offered 10 conventional and 5 unconventional oil and gas blocks under the production sharing deals, but it still failed to attract much interest from international upstream companies.

According to experts, Indonesia still needed to change the regulatory and fiscal regimes to become an attractive destination for oil and gas development in the current oil price environment.

Related: An Energy Independent North America Needs NAFTA

At the time of the introduction of Indonesia’s ‘Gross Production Split’ contracts, PwC said in February that “At this stage it is difficult to determine whether the Gross Split scheme will promote or discourage investment.”

Indonesia’s oil industry contributed just 3 percent of GDP last year, from almost 15 percent in 2014 and as much as a quarter back in 2006. The decline in production has been steady since the 1990s due to a sharp drawdown on exploration and new investment—despite the fact that the county’s energy needs have been growing steadily.  

By Tsvetana Paraskova for Oilprice.com

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