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Oil industry welcomes possible return of cost recovery scheme
Energy and Mineral Resources Minister Arifin Tasrif first raised the possibility of the government reintroducing cost recovery schemes during a hearing with the House of Representatives in Jakarta on Nov. 27.
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Illustration of an offshore oil rig. (Shutterstock/File)
T
he Indonesian Petroleum Association (IPA) welcomes the government's plan to reintroduce a reimbursement scheme for the oil and gas industry known as cost recovery after having to work under a fixed split-cost system since 2017.
In a cost recovery-based production-sharing contract (PSC), the government reimburses companies for upstream-related costs in exchange for a higher share for each company’s earnings from exploiting domestic oil and gas blocks.
Meanwhile, in the so-called gross split scheme, companies bear upstream costs themselves, but the government receives a smaller cut of revenue determined in advance.
“The key challenge in our industry is that not every project is the same. They have different risks, need different rewards. So the discussion about flexibility is something I'm pleased to hear," said newly-appointed IPA president Louise McKenzie at a press conference in Jakarta on Dec. 4.
She added that the IPA, an organization founded in 1971 to facilitate foreign interest in Indonesia’s oil and gas industry, has been advocating for such flexibility to improve the country’s investment climate.
Exploration investments in Indonesia has been declining over the past five years. Investments went from US$3.04 billion in 2013 to $567.5 million in 2017 before improving to $786.2 million last year, energy ministry data shows.
Oil production also steadily declined over the same period from 825,000 barrels per day (bpd) to 754,000 bpd in August this year, according to Upstream and Gas Regulatory Special Task Force (SKKMigas) data.
