Indonesia opens upstream tenders with improved conditions
Indonesia is offering six upstream blocks as part of its first licensing cycle in 2021 with improved terms to help attract new investment. Significantly, investors will have the option of choosing between the new gross pay-as-you-go production-sharing contract (PPC) and the traditional cost-recovery PPC, which the government has tried to phase out in recent years.
A total of six work zones located in the regions of Central Sumatra, South Sumatra, West Java and East Java are being offered under the Indonesian Oil Tender 2021.
“A better distribution of profit participation has been announced for these blocks according to geological risk, infrastructure and resources with a slightly higher share of the contractor on gas developments in all risk categories compared to developments oil companies, ”Prateek Pandey, vice president of analysis at Rystad, told Energy Voice.
“Another revision of fiscal conditions is not surprising as Indonesia seeks to revive investment and production,” Pandey added.
The halving of the first tranche of oil (FTP) from 20% to 10% and higher cost recovery, are likely to have a significant impact on the interest of entrepreneurs and the economy of the potential discoveries of these. blocks, Pandey said.
Four blocks, South CPP onshore West Riau, Sumbagsel onshore West Sumatra, Rangkas onshore Banten and West Java, and Liman onshore and offshore East Java, will be offered through a direct tender mechanism.
These four blocks present moderate risk with total recoverable reserves estimated at 241.9 million barrels of oil and 592.09 billion cubic feet of gas, Pandey said.
The remaining two blocks, Merangin III onshore in South Sumatra, as well as Jambi and North Kangean offshore East Java, will be offered through a regular auction, the Ministry of Energy and Mineral Resources announced yesterday.
These two blocks are estimated to hold total recoverable reserves of 676 million barrels of oil and originate from low risk areas, implying a slightly higher percentage of government in sharing the division for PSC cost recovery, a Pandey said.
Other surfaces should be offered in the coming months.
For exploration interest, the revised regulations concerning the bidder signature bonus, the absence of obligation to forfeit the exploration area for the third year of contact, as well as the possibility of choosing between a PSC with recovery of costs and a gross allocation PSC are likely to have a positive impact on investor interest, Pandey said.
Gross allocation versus cost recovery
When Jakarta introduced the gross pay-as-you-go PSC in 2017, it wanted to phase out the traditional cost-recovery PSC. Large international energy companies, such as Chevron, Inpex, ConocoPhillips and BP, operating in Indonesia, were reluctant to move to the new contract, seen as riskier and less profitable. The gross payout model has remained extremely unpopular with most majors in Indonesia. Its introduction underscored the government’s willingness to do away with traditional cost recovery contracts, which nationalists said favored foreign oil companies.
The Italian Eni, who was ready to be more flexible and accept more risk, was the exception and adopted the gross allocation model.
The government said the gross allocation model improves efficiency and reduces costs for the government. But in many cases, it was less investor-friendly than the cost-recovery PSC, which allowed entrepreneurs to recoup sunk costs before sharing the revenue with the government and generally discouraged rather than attracting upstream investment.
The gross allocation model applies a variable percentage production share on a field-by-field basis, with the allocation sliding up or down depending on various factors – including world oil prices, stage of production, type of production. field, available supporting infrastructure and carbon dioxide level.
The biggest challenge for Indonesia remains to create a regime that can compete for regional and global investment dollars.