New PSC Mechanism: Gross Split - The Challenge of Its Implementation in Indonesia

January 2017Contract Energy

Abstract

In 2015, the Ministry of Energy and Mineral Resources of the Republic of Indonesia (the “Ministry”) issued a new Ministry Regulation Number 38 of 2015 regarding the Acceleration of Exploitation of Non-Conventional Oil and Natural Gas introducing the three new concepts of cooperation contract: 1) Production Sharing Contract (“PSC”); 2) Sliding Scale PSC; and 3) Gross Split Sliding Scale PSC. This new regulation is addressed to regulate the exploitation of oil and natural gas from low permeability reservoirs such as shale oil, shale gas, tight sand gas, coal based methane, and methane-hydrate. However, in October 2016, the new Minister of Energy and Mineral Resources (the “Minister”) announced that the gross split mechanism will be implemented to the mature PSC blocks that produce conventional oil and natural gas. This plan raised pro and contra from the Indonesian oil and gas industry.

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