T

he government and Pertamina have agreed to a split of oil-and-gas production from the Mahakam block post-2017. The agreement dictates that the state-run oil-and-gas company will enjoy a higher portion when the oil price is lower.

Under the agreement, the production split is based on the income ratio toward operating costs.

'€œWe have made it a dynamic split because we are currently dealing with a low oil price. The split will be assessed annually,'€ the Energy and Mineral Resources Ministry'€™s oil-and-gas chief IGN Wiratmaja Puja said recently.

The government'€™s take under the new production sharing contract (PSC) for oil starts from 80 percent and reaches a maximum of 90 percent. The government will receive an 80 percent split when the income ratio toward operating costs is lower or equal. A maximum split of 90 percent will be received by the government when the income ratio toward costs reaches 1.6.

A similar pattern will be imposed for a split in gas production. Under the deal, the minimum split is set at 65 percent and the maximum is set at 75 percent.

Those figures will be slightly lower compared to the current split applied to the Mahakam PSC. Under the current PSC, the split for the government is set at 85 percent for oil production and 70 percent for gas. The contractors are entitled to a 15 percent split for oil output and a 30 percent portion of gas
production.

'€œThe revenue over cost concept is fair enough because the split can be adjusted. I think this is good for us,'€ Pertamina director for upstream, Syamsu Alam, said recently in regard to the deal with the government.

Oil-and-gas firms worldwide have been struggling to survive this year'€™s plunge in oil prices. The price is currently hovering at less than $35 per barrel, which is almost a third of the level reached in early 2014.

The new Mahakam PSC, in which Pertamina becomes the operator, is expected to be officially signed before the end of the year.

The current Mahakam PSC, held by Total E&P Indonesie and Inpex Corp., both of whom possess a 50 percent stake, is set to expire at the end of 2017. The government has decided to terminate the PSC and has appointed Pertamina to be the new operator starting in January 2018. The government has given a green light for Pertamina to team up with Total and Inpex to operate the block under the new contract post-2017.

In mid-December, Pertamina, Total and Inpex signed a head of agreement (HoA) related to the transition of operatorship of the Mahakam block.

The Mahakam block currently produces 1.68 billion cubic feet per day (bcfd) of gas and around 69,000 barrels of oil per day (bopd). Under the 2016 plan, the block is estimated to produce 1.4 bcfd in gas and 56,000 bopd, according to Total'€™s Arividya Noviyanto.

As much as US$1.1 billion is estimated to be disbursed next year in investment. The figure is lower than the projected realization of investment of $1.97 billion by the end of 2015.