The Indonesian government has decided to revise a 2017 law that expands the flexibility for oil and gas investors in determining their contract options for exploration and production (E&P). The revisions will be valid starting on July 16 when contractors are allowed to choose between different sharing contracts, including the "gross split" and "cost recovery" systems.
In the past, Indonesia typically applied the "cost recovery" scheme for oil and gas production deals, in which the government reimbursed E&P costs borne by the contractors. In exchange, the government received a higher share of companies' oil and gas earnings. It began adopting the "gross split" scheme in 2017, in which contractors bear E&P costs. In return, the contractors keep a larger portion of the hydrocarbon they recover.
According to the Minister of Energy and Mineral Resources, the expanded flexibility will provide legal certainty and boost investment in the upstream oil and gas sector. Under the revised regulation, the ministry will determine the cooperation contract if state-owned PT Pertamina or its affiliates are appointed.
