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A Brief Overview Of Gross
Split PSC
Content
A. Objective B. Background
C. Gross Split Features and Overview
D. Analysis
E. Conclusion
Objective
Provide overview on the reasons of the emerging of Gross Split PSC, its features, and impact to
investment in Indonesia’s upstream sector.
Background
Gross Why Split?
Increase Governme
nt take
Encourag efficiency e
bureaucrac Cut complexity y Eliminat
e cost recovery
issue
Government claims that Gross Split offer a model to remove layers of
Legal Basis
MEMR Regulation
08/2017 (12 Jan 2017)
• Introduction on Gross Split Scheme
MEMR Regulation
52/2017 (29 August
2017)
• Amend the MEMR 08;
delete the 5%
split cap and add variable and progressive split
component.
GR 53/2017 (28 Dec 2017)
• General Tax treatment and incentives on Gross Split Scheme
Waiting on Ministry of Finance Regulations and Minister of Energy and Mine on the
technical
implementations on
Gross Split scheme.
Gross Split Implementation
As of July 2018, 7 blocks have signed and applied Gross Split PSC:
PSC Name Block Name Block Phase Signing date
Pertamina Hulu Energi Offshore North West
Java Production 18 January
2017
Mubadala Petroleum Andaman I Exploration 5 April 2018
Consortium of Mubadala, Premier Oil and Kris
Energy
Andaman II Exploration 5 April 2018
ENI East Ganal Exploration 17 July 2018
Balam Energy East Seram Exploration 17 July 2018
Consortium of Repsol –
MOECO Southeast Jambi Exploration 17 July 2018
Another expiring 5 blocks will adopt Gross Split PSC Scheme:
Contractor Working Area
PHE Tuban East Java Tuban
PHE Ogan Komering Ogan Komering PHE Sanga - Sanga Sanga - Sanga
PHE Offshore Southeast Sumatra Southeast Sumatra
PHE NSO North Sumatra Offshore
Gross Split Features and Overview
Item Gross Split PSC
Cost recovery mechanism
30 years contract life with extension options
Asset ownership by Government
of Indonesia
SKK MIGAS approval and
supervisory role *
Domestic Market Obligation (DMO) at discounted price
First Tranche Petroleum (FTP)
Dynamic profit split
Tax at exploration stage
Value Added Tax
Reimbursement
* SKK Migas only approve work program and supervise government asset
Transitional implementation
PSC Condition Treatment
Existing PSCs Not automatically affected by Gross Split, however PSC Contractors under such contract may request to transition to Gross Split terms if preferred.
Expiring PSCs Where the expiring PSC is not being extended, the new contract will take the form of a Gross Split PSC. However, where the expiring PSC is to be
extended, the Government will decide to continue with Cost Recovery PSC or move to Gross Split.
Expiring PSCs, with extension already
approved For Cost Recovery PSC in respect of
which an extension had, as of 13 Jan
2017, already been approved, the cost
recovery regime will continue unless
the Contractor request to transition to a
new Gross Split PSC.
Gross Split Tax Incentives
Tax free during exploration and exploitation period until the start of commercial production.
10 years of loss carry forward.
Contractor can choose fixed tax rate or dynamic rate by following the current tax rate throughout the PSC life.
VAT and WHT exemption on cost sharing and Parent Company Overhead (PCO).
Branch Profit Tax exemption for transfer of participating interest transaction.
Additional deductible expense item i.e. CSR cost during exploitation
period, employee income tax allowance.
Gross Split Analysis
Standard PSC vs Gross Split PSC
Split Composition
Contractor Split
Bas e Split
Variabl e Split
Progressi
ve Split Oil Gas
Governme
nt 57% 52%
Contractor 43% 48%
BASE SPLIT
VARIABLE SPLIT
A field-specific factors to add the base split
PROGRESSIVE SPLIT
Oil & Gas Price and Cumulative Production
Split Composition – Cont’d
Oil and Gas price could make
negative split
Potential issues
Existing cost recovery pools. Unclear mechanism of conversion of unrecovered cost from Conventional PSC to Gross Split PSC.
Ownership of assets and equipment. Government of Indonesia still have the right of assets and equipment even though such
working area does not reach production stage.
Untested tax audit approach of non deductible expenses.
Unclear procurement process (SKKMIGAS supervisory role, local content, and national employees).
Higher investment risk as Ministry have sole discretion to re-calculate
block economics.
Gross Split, despite of its promise of better profit and less complication, will create new concerns and significant
unanswered matters to stakeholders. A thorough and
comprehensive analysis need to be conducted prior to Gross Split investment.
Conclusion
Thank You
Back up
Overview of Indonesia current PSC vs Gross Split
$ 30
Contractor Net Cash Flow:
PSC US$ 15.37 Gross Split US$ 7.8
($ 5.2 )
Summary of MEMR 8/2017 & MEMR 52/2017
NO. DESCRIPTION REF
1. • A Gross Split sharing concept based on a gross production split without regard to a cost recovery mechanism.
• A retention of the following key principles:
a) that the ownership of the natural resources remains with the State until the point of delivery of the hydrocarbons (as per existing PSCs);
b) that control over the management of operations is ultimately with SKK Migas; and c) that all capital and risks should be borne by Contractors.
Articles 1 & 2
2. Gross Split Mechanism Articles 6
3. SKK Migas SOW
• This will be limited to control and monitoring of Gross Split PSCs.
• Control will mean to formulate policies on Work Programs and Budgets (“WP&B”). The work program (i.e. not the budget) should be approved within 30 working days of complete documentation being received.
• Monitoring will mean to supervise the realisation of exploration and exploitation activities according to the approved work program. No longer involved in approving procurement of goods and services
• The 1st PoD must be approved by the MEMR. The Head of SKK Migas can approve any 2nd PoD.
Articles 15, 16 and 23
4. • Contractors shall carry out procurement of goods and services independently. It has been reported that this will mean that government procurement regulations (such as PTK-007) may no longer be required to be followed
Article 18
5. • The DMO remains at 25% of the Contractor’s entitlement/split and paid by the GoI at ICP.
• Contractors should priorities the use of local manpower, domestic goods, service.
• Other matters pertaining to Indonesian participation, unitisation, abandonment and reclamation costs, etc should follow prevailing rules.
Articles 17, 18, 19 and 20
Contractor Take=Base Split ± Variable Components ± Progressive Components Government Take=Government
