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Production
Sharing Basic Term |
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There
are some principles underlying the Production Sharing
Contract:
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- Production
Sharing Contract was setup within the concept of
the Indonesian Law No.44/Prp/1960, Law No. 8/1971,
Law No.7/1983 and Ministerial thereto.
- Pertamina
on behalf of the Government of Indonesia shall be
responsible for management of the operations in
the Contract Area.
- CONTRACTOR
shall be responsible for the execution of the operations,
and shall provide all foreign exchange, technical
assistance and carry the risk of all exploration
costs.
- Indonesian
participation: 10%.
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The
Government of Indonesia/PERTAMINA in securing its objectives
as well as the Contractor's under said dynamics, has from
time to time modified the PSC, not in terms of its principle
features, but more in its fiscal terms. Such modifications
were made to adopt to prevailing situational issues, such
as fluctuation in crude oil price, taxation, etc., as
well as to non-situational factors such as the natural
conditions of the acreage implying the risk and cost of
exploration.
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Arrangements
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There
are five arrangements of the contract as follows:
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1.
Contract of Work (COW)
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Companies are Contractors to Pertamina
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Contractors are responsible for management and operation
- 60%
of balance is paid to the Government
- 25%
of the 40% is taken for Domestic Market Obligation
(DMO)
@ US$ 0.20/bbl reimbursement
- Minimum
Government income is 20% of the total revenue
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This type of contract is no longer applied.
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2.
Production Sharing Contract (PSC)
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Corporative agreement in the sector of oil and natural
gas between Pertamina and foreign capital investor,
in which:
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Pertamina is the management
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Related foreign oil company is contractor responsible
to Pertamina
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Sharing is made on production, not on profit
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Title to contractors portion of crude oil and gas
(cost and entitlement oil/gas) shall pass to contractor
at the point of export or point of delivery
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Laws, decrees, regulations and decisions of Republik
of Indonesia shall be applicable
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3.
Technical Assistance Contract (TAC)
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Sharable crude is crude other than primary crude
- Cost
of equipment and services for the primary crude will
become part of the operating cost
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Maximum operating cost is 60% of total sharable lifting
cost
- On
obligatory DMO contribution @ 15% export price is
taken from the contractor's share. After cost recovery:
- Pertamina
: 85%
- Contractor
: 15%
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4.
Joint Operation Assistance (JOA)
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Pertamina holds 50% participating interest
- The
participating interest of contractor is subject to
the same terms and split as used in the PSCs
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Pertamina is the operator assisted by the contractor
in the form of a Joint Operating Body (JOB)
- JOB
is responsible to, and supervised by Joint Operating
Committee (JOC)
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Pertamina and contractor are the member of JOC
- JOC
approves Work and Program Budget, and holds policies
- Contractor
carries Pertamina in financing exploration, ventures
and advance development projects
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Pertamina's sunk cost is recoverable and 50% uplift
is applicable
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5.
Enhance Oil Recovery (EOR)
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The scope of project is: pilot phase, injection water,
fluid handling and treating facilities, drilling,
work-over of injections and production wells
- Injection
system, flow lines until the connecting flanges to
the manifold inlet of Pertamina gathering station
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Incremental oil production: is determined for each
production zone and agreed prior to contract signing
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EOR cost and incremental oil produced are governed
by the same terms as the JOA, except that 65% cost
recovery ceiling is applied in the EOR
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Cost incurred by Pertamina downstream is chargeable
to EOR operation on pro-rata basis
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The initial to yield contract is allowed to the pilot
phase, thereafter full EOR project will commence
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The
Indonesia government applied the New Taxation Law and
Regulations for the PSC with a tariff of 48% in 1984.
However, the new regulations were applied only to PSC's
signed after 1988 because during the process of negotiation
the contractor tended to apply the old taxation regulations.
Since the government carried out the rule of Income Tax
Law No. 10/1994, the new taxation for the PSC is 44%.
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Thus,
the standard sharing of production changed into the following:
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Oil : 65.9091% for Government, and 34.0909% for the
Contractor
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Gas: 20.4545% for Government, and 79.5455% for the
Contractor
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The
net share after deduction of tax:
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Oil: Government/Contractor = 85/15
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Gas: Government/Contractor = 65/35
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Flow
of Revenue of PSC |
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Exploration
Incentive Packages |
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Knowing
that exploration for oil and gas is a risky venture, the
government of Indonesia has offered four incentives to
oil companies since 1988.
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The first incentive package introduced in August 1988,
included deregulation measures to be taken in the
procedure.
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The second incentive package issued in February 1989,
addressed the equity split for mafriban fields, oil
produced from Pre-Tertiary reservoir rocks, Tertiary
EOR projects and investment credit incentives for
deep sea contract areas.
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The third incentive package introduced in August 1992,
was intended to stimulate activities in gas exploration
in both conventional and frontier areas with better
equity split and the improvements of investment credit
and DMO
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The fourth incentive package appeared in late 1993.
This package is based on geological thinking with
geographical considerations. The archipelago is divided
into the Western part as defined by the Sunda Platform
and the Eastern part, that is the area east of 200
m isobath and other frontier areas in Western Indonesia.
The DMO fee in the fourth package was increased from
15% to 25% of export price, while the First Tranche
Petroleum (FTP) was decreased from 20%
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The
following table is the incentive packages:
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Element
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1st
Incentive Package
(August 1988)
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2nd
Incentive Package
(February1989)
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3rd
Incentive Package
(August 1993)
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4th
Incentive Package (December 1993)
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Investment
Credit
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Investment
Credit amounting 17% of the Capital investment cost
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For
deep sea areas over 600 ft:
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Development areas :
- Pre-Tertiary
reservoir rocks = 110% for oil and gas
- Water
depth 200-1500 m = 110% for oil and gas
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Water depth below 1500 m = 125% for oil and
gas
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No
longer applied
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Commerciality
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Condition
that the government has to obtain as minimum of
49% of the gross revenue not valid anymore. The
minimum guarantee is 25% of the gross revenue for
the government
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Abolished
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Abolished
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Abolished |
Domestic
Market Obligation (DMO) Prices
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10%
of export price after this first five years
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10%
of export price after this first five years
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15%
export price after the first five year.
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25%
export price after the first five year.
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First
Trache Petroleum (FTP)
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20%
of production taken before deduction of cost recovery
and will be split between government and contractor
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No
change
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No
change
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15%
of production taken before deduction of cost recovery
and will be split between government and contractor
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Split
for Oil
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Frontiers
Production:
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Marginal
Fields and EOR in Tertiary Reservoir:
Conventional
Area = 85%:15%
Frontier
Area = 75%:25%
Pre-Tertiary
and deep sea (over 600 ft) production: Incremental
split as same as frontier production in the first
package
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65%:35%
without Investment Credit
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Split
for Gas
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Frontiers
Production = 70%:30%
Conventional
Areas = 70%:30%
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No
change
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Frontiers Production:
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Field developed in conventional areas = 65%:35%
- Field
developed in frontier areas = 60%:40%
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Field developed in areas with water depth >
1500 ft = 55%:45%
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60%:40%
without Investment Credit.
This
split is applied for Eastern Indonesian areas
and path of Western Indonesian areas having similar
geological and geophysical conditions.
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