New Gross-Split Scheme for the Upstream Oil-and-Gas Industry

In a bid to improve the efficiency of national oil-and-gas production, the government has introduced a new type of production-sharing contract for oil-and-gas contractors (“Contractors”) which it has called the gross-split scheme (“GS-PSC”). Details of the new GS-PSC are set out in Ministry of Energy and Mineral Resources (“Ministry”) Regulation No. 8 of 2017 on Gross-Split Production-Sharing Contracts (“Regulation 8/2017”).Regulation 8/2017 redefines the provision on gross-split sliding-scale production sharing contracts (“GS-SS-PSC”), which was set out under Ministry Regulation No. 38 of 2015 on the Acceleration of Unconventional Oil-and-Gas Business (“Regulation 38/2015”). [1] Gross-Split Production-Sharing ContractsUnder these new GS-PSC schemes, the government and Contractor takes in relation to any oil-and-gas lifting projects are to be determined based on the amount of gross production. The new GS-PSC no longer incorporates the obligation for the government to cover Contractors’ operational costs, a process which is commonly known as the “cost recovery” provision. [2] Furthermore, the new GS-PSC no longer imposes the obligation for Contractors to allocate First Tranche Petroleum (FTP) [3] as regards the obligation for the government to provide investment credit. [4] All of the relevant oil-and-gas reserves in Contractors’ working areas will remain under the ownership of the state until such reserves are ultimately lifted and transferred to the state. In a manner similar to other types of oil-and-gas cooperation contracts, the control and supervision of the implementation of GS-PSC and the management of Contractors still lies with the Task Force for Upstream Oil-and-Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi– “SKK Migas”). [5] GS-PSC CalculationsTwo main components are involved in the calculation of any gross-split amount between Contractors and the state, namely: 1) The base-split component; and 2) The adjustment component. [6] The base-split component refers to the amount of production sharing as it breaks down between both parties. The amount of any base split is agreed if the initial Plan of Development (“PoD”) for a given working area and which is prepared by the Contractors is approved by the Ministry. [7] The current gross-split amounts are detailed in the two pie charts below: [8] Meanwhile, the adjustment component encompasses several conditions which are to be used in order to adjust the base-split component outlined above. There are two types of adjustment component, namely the variable component and the progressive component. Details relating to each of these components are set out in the table below: [9]