The New Paradigm for Exploration and Development Strategy: Case Study of Production Sharing Contract Extension

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Abstract
This paper presents the results of analysis and evaluation of
several problems that arise due to Oil and Gas Production
Sharing Contract (PSC) extension proposals. Government’s
decision on the proposed extension should at least consider
the performance of the operator in managing working area,
continuity of production, oil and gas resources/reserves,
ongoing projects, technical and subsurface conditions, as
well as the benefits to be derived by the State when
extension proposal being granted. In this paper, several
examples of the Government’s decisions regarding PSC
extension proposal were examined. It shows that the
decision on proposed extension faced with a dilemma. In
this case, technical and economic considerations faced by
non-technical considerations. Another problem arises
when foreign contractor proposed an extension while at the
same time Government must consider the national one.
The decision on PSC extension proposals must be carried
out carefully and quickly so that exploration and production
activities will not be interrupted.
Introduction
Petroleum industry is vital and critical to man civilization.
According to Frontline, world oil consumption in the year
of 2000 is 76 million barrels per day and predicted to be
increase to 119 million barrels per day in 2020. With such
a demand, massive oil (and gas) exploration and
development has been carried out for the last several
decades. Similarly, Indonesia has carried out oil and gas
exploration and development for decades. Since 1970’s,
Production Sharing Contract (PSC) has been use to manage
the industry.
Indonesia has change the world fiscal system design by
introducing PSC, the concept of control where oil/gas
companies work for the Government. Furthermore,
Indonesia also introduced a 85:15 profit split which
considered fair enough for both parties. Indonesia
considers to being a decade ahead of most countries
regarding understanding fiscal system design and analysis
(Johnston, 2013).
The PSC’s are worth a 30 years period with a possibility to
be extended for another 20 years. One of the main
principal of it is that the Government cannot be exposed by
risk. Indonesia’s PSC generally consist of exploration stage
(6-10 years) and exploitation/development stage (after oil
and gas commercialization). By April 2013, there are 230
PSC in exploration stage and 77 in exploitation stage.
Several of them are at the end of its life (vary from 2-10
years before the end of contract). These PSC’s are entitles
to propose an extension. PSC’s extension proposal is a
serious matter for both contractors and Government.
Data and Method
In the case of extension proposals, Government’s decision
on the proposed extension should at least consider the
performance of the operator in managing working area,
continuity of production, oil and gas resources/reserves,
ongoing projects, technical and subsurface conditions, as
well as the benefits to be derived by the State when
extension proposal being granted. The decision is whether
to extend or to terminate. It has never been an eas