T

he Energy and Mineral Resources Ministry is revising the controversial gross-split scheme in a move that may dictate the fate of more than a dozen upstream oil and gas blocks on auction this year.

The government introduced in January the new oil and gas production sharing scheme to improve the poor investment climate in the upstream sector, which has remained sluggish amid plunging global oil prices.

Unlike its predecessor, the cost recovery scheme, the gross-split mechanism exempts the government from the duty of reimbursing contractors for exploitation expenses during their contract period.

Instead, the companies will have to bear the cost themselves, and the profit split between the government and contractors is determined by several conditions surrounding the project.

The government will receive a base split of 57 percent for oil production and 52 percent for gas output under the new scheme, lower than 85 percent and 70 percent for production of oil and gas, respectively, under the previous arrangement.

Despite higher shares of output given to investors, both business players and experts welcomed the gross-split scheme with a lukewarm response.

The ministry has finally acknowledged the failure of the scheme and is now amending Ministerial Decree No. 8/2017, which sets the arrangement.

“We have listened to the suggestions from contractors. As I’ve said before, these man-made products are always subject to revision if it does not boost investment,” deputy minister Arcandra Tahar said, adding that the revisions would hopefully be able to achieve a net present value (NPV) of upstream projects under the gross-split scheme equally as desirable as that of the previous scheme.

The ministry plans to add more undisclosed variables to the current list of factors that determines the final output split between contractors and the government.

Moreover, Arcandra confirmed the revision would increase the contractor split as an incentive for those working on the second plan of development (POD) of a new oil and gas field.

The existing scheme only applied a maximum 5 percent split for the first POD.

Upstream players seem to be waiting for the revision with bated breath.

Indonesian Petroleum Association (IPA) executive director Marjolijn Wajong hoped the revised scheme would pay more attention to the economic characteristics of each field caused by its level of difficulty.

“It would be best if the revision gave room for the government to increase the economic feasibility of a field if need be,” she said.

The ministry has put up 15 oil and gas working areas for auction this year under, with all of them offered under the gross-split scheme.

Of the figure, 10 areas can be bid through a direct proposal mechanism, while the rest are set to go through regular tender processes.

The bid submission for the direct proposal mechanism and the regular tender was initially slated for May 29 to July 12 and May 29 to Sept. 25, respectively.

However, the ministry has extended the submission deadline for direct proposals to Sept. 16. The extension may be attributed to the lack of appetite among investors due to the absence of the regulation governing the tax treatment under the gross split scheme. The ministry, meanwhile, claimed the move would allow all prospective contractors to further review the bidding documents.

“Considering the current low oil price condition, we want to give them some extra time to review the bidding documents,” the ministry’s upstream oil and gas business development director, Tunggal, said.