The government will offer two options on the development of four coal bed methane (CBM) blocks which will be auctioned later this year, a senior official at the Energy and Mineral Resources Ministry has said.
“The investors may choose between the net production sharing contract or gross production sharing contract,” the director general for oil and gas Evita H. Legowo said last week.
Under the current system, the CBM contract adopts the production sharing contract (PSC) which is also used in the oil and gas industry.
Under the current PSC, the revenue split between the government and the contractors is calculated from the net production, so this is often referred to as the net-PSC.
For the four new blocks, located in Sumatra and Kalimantan, expected to be auctioned in June or July, this year, the government will provide a gross production sharing contract as an option, Evita said.
Under the gross production sharing contract, the revenue split is calculated from the CBM gross production, meaning that the output will be divided directly between the government and the contractor without any reduction for the cost of recovery payments. Unlike in the net PSC option, under the gross PSC mechanism, the contracts’ cost will not be refunded by the government.
The government said the new alternative contract would not offered in a bid to accelerate the commercialization of CBM.
According to the government, CBM gas development is different from that of conventional natural gas, as it can be flared even during the exploration stage. Under the net-PSC scheme, gas commercialization must be done after the exploration is done and the plan of development (POD) approved, meaning that the flared gas from the CBM blocks cannot be sold until the exploration and POD procedures are completed.
With the gross POD, the gas commercialization can be started from the beginning of the projects.
Sammy Hamzah, president director of CBM contractor PT Ephindo, said contractors had not been shown the details of the new contract scheme. “The new scheme can be seen as an incentive only if its commercial terms are more attractive to investors,” he said in a text message.
Indonesia has 11 basins with estimated CBM reserves of 453.3 trillion cubic feet (TCF). The government began awarding CBM contracts in 2008, following the increasing domestic demand for gas.
To date, the government has awarded 20 CBM contracts, and expects some of the CBM blocks to begin production as early as 2011.
