T

he Energy and Mineral Resources Ministry is considering a new contract scheme to boost the development of coal bed methane (CBM) in the country.

The new scheme for CBM, which will involve what is known as a '€œgross split sliding scale,'€ will have no cost-recovery mechanism and will apply a progressive split of production between the government and contractors, a senior official has said.

'€œUnder the planned new system, the production will be shared between the government and contractors, but all costs will be borne by the contractors,'€ said the director for upstream business at the ministry'€™s oil and gas office, Djoko Siswanto.

'€œFrom the beginning of production until the investment payback period, the contractors'€™ portion will be bigger than [the government'€™s]. However, the government'€™s share must be bigger afterward,'€ he added.

Currently, Indonesia applies a production-sharing contract (PSC) scheme for development of its oil and gas blocks. CBM blocks use a similar scheme, which has long drawn criticism, as the non-conventional block is seen to have different characteristics.

Under the current system, the production of oil and gas is divided between the government and contractors after cost recovery is deducted. Under a PSC system, oil and gas blocks are owned by the government while companies are under contract to utilize the resources. The system is seen as beneficial to the government because all costs and risks are carried by contractors. Only if the project is successful will expenditure be reimbursed.

The cost recovery is a key issue, as it relates to governmental income from the sector.

A regulation related to the planned gross split sliding scale scheme for CBM is expected to be issued by the end of the month, according to Djoko.

The country is estimated to have 453 trillion cubic feet (tcf) of CBM reserves. Since 2008, the government has granted 54 working areas for CBM development, largely around Sumatra and Kalimantan. However, the complexity of the development and a number of other issues have hampered the projects.

Under an initially ambitious target, the government planned to see CBM production of 500 million standard cubic feet per day (mmscfd) by 2015. The target was later scaled down to 8.9 mmscfd. Meanwhile, production in 2014 stood at around 0.625 mmscfd.

The head of the Upstream Oil and Gas Regulatory Task Force (SKKMigas), Amien Sunaryadi, said other adjustments to CMB contract schemes were necessary, particularly to utilize flare gas resulting from the exploration stage.