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Oil and gas giants mulling switch to cost recovery scheme
Pertamina's upstream arm PHE and MedcoEnergi are seeking to switch their contracts from a gross split to a cost recovery scheme for certain oil and gas fields to improve their profitability and overall output.
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Clear skies rise above an oil and gas rig in the Mahakam Block off the waters of East Kalimantan, in this undated handout photo from Pertamina. (Pertamina/Pertamina)
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T Pertamina Hulu Energi (PHE), the upstream arm of state-owned holding company Pertamina, and PT Medco Energi Internasional (MedcoEnergi) are considering amendments to production-sharing contracts (PSC) to improve the economics of their projects and boost the country’s oil and gas reserves.
The so-called gross split scheme underlying many PSCs has been blamed for hampering investments to develop oil and gas fields, and some major players are looking to take advantage of what appears to be the government’s greater willingness to revise contracts so they are based on a cost recovery scheme.
The gross split scheme was introduced in January 2017 to replace the cost recovery scheme for oil and gas projects. However, the Energy and Mineral Resources Ministry decided in late 2019 to allow companies bidding for new blocks or extending their contracts to choose between the two schemes.
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Benny Lubiantara, undersecretary of exploration, development and management at the Upstream Oil and Gas Regulatory Special Task Force (SKK Migas), said MedcoEnergi sought to revise its contract for the Corridor Block in South Sumatra due to “economic factors”.
“The Corridor Block is not too [profitable] with the gross split scheme, a lot of projects cannot be carried out,” he told reporters in Jakarta on Monday.
He added that if the company obtained approval to revise its contract, SKK Migas would expect the block’s development to progress faster.
