Comparative study of gross split and cost recovery production sharing contracts in Indonesia

Abstract

In upstream oil and gas business, Indonesian has introduced Production Sharing Contract Cost Recovery (PSC CR) in 1966 and still implementing that fiscal system until nowadays. In January 2017, The Indonesian Minister of Energy and Mineral Resources (MEMR or ESDM) introduce new PSC system called Production Sharing Contract Gross Split (PSC GS) following with three amendments until 2019. Ministries believe this new Fiscal regime can attract more investor to invest Oil & Gas business in Indonesia by delivering three main values which are certainty, efficiency, and simplicity policies. This study evaluates and compares the financial aspect of new Indonesian fiscal regime called PSC GS with the former Indonesian fiscal regime PSC CR. In this study, financial analysis was performed to compare the output of both fiscal terms on thirty fields samples as case studies. The comparation use some of key financial parameters, for instance Net Present Value (NPV) and Internal Rate of Return (IRR) which can be calculated from project input such as oil production, gas production, investment cost, operational cost etc. using the formula from the structure of each fiscal regimes. According to the result, it can be concluded that for majority of the 30 samples, PSC CR will generate a better NPV and IRR for the contractor. Next, sensitivity analysis is done by calculating Net Contractor Take percentage in several different hydrocarbon price scenario as representative of unpredicted future. According to the result, even though both regimes are showing regressive fiscal, but in overall PSC GR are tends to be resulting a lower NCT with sensitively changing in different price condition, meanwhile for PSC CR tends to be resulting a higher NCT with more stable NCT percentage in various condition of oil and gas prices. These results can be quideline that selecting the right fiscal regime can be affect the result of contractor financial project profit.