Indonesia scraps oil, gas cost recovery ceiling
Wednesday, 6 January 2010
JAKARTA, Jan 05 (Commodity Online): Indonesia said it will abandon the recently adopted practice of putting a ceiling on the annual cost recovery payment reimbursed to contractors.
In a statement issued here Indonesia's Coordinating Economic Ministry said the policy of capping cost recovery is not appropriate.
Indonesia's oil and gas production sharing contract (PSC) scheme required the government to reimburse all contractor cost items within the scope of the cost recovery payment rules.
Analysts said Indonesian government was forced to take its decision after oil production dropped and not enough investors to develop new oil and gas blocks
The payment is reimbursed after the contractors enter the production stage. But following strong criticism over alleged lack of transparency in the implementation of cost recovery, as of last year, eligible expenses due for payment from the state budget have been capped annually.
The law on the 2010 state budget caps the total cost recovery payment at $12 billion, up from $11.05 billion in 2009.
The government's decision to scrap the cost recovery cap may satisfy the oil and gas contractors, but external analysts say this may make no significant contribution to help the country's oil and gas blocks to find new investors.
Indonesia failed to find investors for most of its oil and gas blocks last year. Oil and gas contribute about 30 per cent to Indonesia's revenues. But, the sector's performance is in question as it missed production and investment targets last year.
"The main problem is the poor exploration data. The government only offers the basins without initial geology and physical surveys", analysts said.
Indonesia's oil lifting in 2009 was 949,138 barrels of oil per day, lower than the state budget target of 960,000 bpd.
In a statement issued here Indonesia's Coordinating Economic Ministry said the policy of capping cost recovery is not appropriate.
Indonesia's oil and gas production sharing contract (PSC) scheme required the government to reimburse all contractor cost items within the scope of the cost recovery payment rules.
Analysts said Indonesian government was forced to take its decision after oil production dropped and not enough investors to develop new oil and gas blocks
The payment is reimbursed after the contractors enter the production stage. But following strong criticism over alleged lack of transparency in the implementation of cost recovery, as of last year, eligible expenses due for payment from the state budget have been capped annually.
The law on the 2010 state budget caps the total cost recovery payment at $12 billion, up from $11.05 billion in 2009.
The government's decision to scrap the cost recovery cap may satisfy the oil and gas contractors, but external analysts say this may make no significant contribution to help the country's oil and gas blocks to find new investors.
Indonesia failed to find investors for most of its oil and gas blocks last year. Oil and gas contribute about 30 per cent to Indonesia's revenues. But, the sector's performance is in question as it missed production and investment targets last year.
"The main problem is the poor exploration data. The government only offers the basins without initial geology and physical surveys", analysts said.
Indonesia's oil lifting in 2009 was 949,138 barrels of oil per day, lower than the state budget target of 960,000 bpd.