Post on 23-Dec-2015
transcript
Indonesian PSCM81GED
Petroleum Economics
Indonesian PSC TermsFTP: First Tranche Petroleum
Investment Credits
Domestic Market Obligation
First Tranche Petroleum: FTP is basically having the same concept as royalty but it is split based on the government shares and contractor shares. (20% of Gross Prod)
Investment Credit: cost recoverable but it is subject to tax (17%-20% of gross production. IC applies only to production facilities such as
platforms, pipelines and processing equipment.
Domestic Market Obligation: Obligation to sell the oil for domestic needs. (25% of Contractor share)
Cost RecoveryThe amount of expenditures such as costs of explorations,
developments, and operations could be recouped by the contractor out of the Gross Revenue.
The History of PSC in IndonesiaConcessionary (prior 1960)
Working Contract Era (1960-1965)
PSC 1st Generation 1965
Constitution No.44/1960
• All the oil and gas reserves in Indonesia belongs to the Government
• The petroleum activities is only done by the Gov.Institution
• Mining Minister may appoint contractor to conduct the activities that could not be done by the Government Institution.
The basic constitution is the 1945 Constitution “all the resources under the states belongs to the states and shall be used to the greatest benefits of the people
• All foreign oil & gas companies contractor• Risk and management the contractor• Operating activities funded by the contractor• Term of the contract is 20 years• Shares was based on the net income
60%/40%• DMO 25% of their shares with $0.2/bbl as a
fee
• Shares was based on the gross production (volume oil/gas)
Indonesian PSC Evolution- First Generation (1967-1978)
- Second Generation (1978-1990)
- Third Generation (1990-current)
• There was unclear taxation system in Indonesia. The tax paid by the IOC was not considered by the USA as tax deductible (the first PSC was IIAPCO Independence Indonesian American Oil Company)
• The significant decrease in oil price (because of the economic recession in 1980’s) drove the government to change the PSC terms
Indonesian PSC EvolutionDescription
PSC 1st Generation (1965-1976)
PSC 2nd Generation (1976-1988)
PSC 3rd Generation (1988-current)
FTP None None 10% - 20%
Cost Recovery Ceiling
40% 100% (no ceiling) 80% (due to FTP)
Investment Credit
None 20% 17% - 20%
DMO DMO was defined as 25% of equity oil at $0.2/barel
25% of equity oil, full price for the first 60 months and $0.20/barrel there after
25% of equity oil, full price for the first 60 months and
10% of export price there after
Equity to be Split
Government / Contractor
Oil 65%/35% 85%/15% 85%/15%
Gas 70%/30% or 65%/35% 70%/30% or 65%/35%
PSC 2nd to 3rd Generation : The significant decrease in oil price (because of the economic recession in 1980’s) drove the government to change the PSC terms.
PSC shares: Shares was based on the gross production (volume oil/gas)
Indonesian PSC ConceptGross Production
FTPInvestment CreditCost Recovery
Equity Oil to be Split
(-) (-)
(-)
(+)
Gov. Share Contractor Share
DMO
DMO Fee
Income Tax
Taxable Income
Government Take
Contractor Take
(+) (-)
(+)(-)
(-)
(+)
(+) (+)
First Tranche Petroleum: FTP is
basically having the same concept as
royalty but it is split based on the
government shares and contractor shares.
(10%-20% of Gross Prod)
Investment Credit: cost recoverable
but it is subject to tax (17%-20% of
gross production. IC applies only
to production facilities such as platforms, pipelines and
processing equipment.
Domestic Market Obligation: Obligation
to sell the oil for domestic needs. (25% of Contractor share)
FTP prior to 201010%15% depends on the Contract20%
The more remote area, the more difficult to be developed, the smaller FTP will be applied.FTP is split based on the % of the shares but for some contracts they don’t split the FTP.The current PSC now only 20% FTP.
First Tranche Petroleum
Cost Recovery Mechanism
Ring Fencing Policy in Indonesia
Contract A vs Contract B
Capital & Non Capital Cost
Will be calculated beginning the Calendar Year, asset is PIS with monthly depreciation for the Initial Calendar Year
The method used is Declining balance method
Based on individual asset Full depreciation at the end of the individual
asset’s useful life
Depreciation Expenses
2 Group of Assets (based on Taxation system in Indonesia)
a. Group 1 50% : useful life 5 years such as automobile, truck, buses, aircraft, construction equipment, Furniture & Office equipment
b. Group 2 25% : useful life 10 years such as construction utilities and auxiliaries, platform and storage plant, construction housing and welfare, Production facilities, Vessels, Barges,tug and similar water transportation equipment, drilling and production tools, equipment and instruments.
Depreciation Factor
Indonesian PSC FrameworkSections Descriptions
I Scope and Definitions
II Term: Term of Commerciality of Contract Area
III Exclusion of Area: Relinquishment of Area
IV Work Program and Budget Expenditures
V Rights and Obligations of the Parties
VI Recovery of Operating Costs and Handling Production
VII Valuation of Crude Oil and Natural Gas
VIII Compensation, Assistance, and Production Bonus
IX Payments
X Title of Equipment
XI Consultation and Arbitration
XII Employment and Training of Indonesian Personnel
XIII Termination
XIV Books and Accounts and Audits
XV Other Provisions
XVI Participation
XVII Effectiveness
At least 3 months prior to the beginning of each calendar year, or at such other times as otherwise mutually agreed by the Parties, Contractor shall prepare and submit for approval BPMigas (now SKK Migas) a Work Program and Budget of Operating Cost for the Contract Area setting forth the Petroleum Operations which Contractor purposes to carry out during the ensuing Calendar Year.
Work Program and Budget
Every 3 months the Contractor should establish this FQR to show the progress of the operation.
FQR: Financial Quarterly Report
Conducted by Government To ensure that the Recoverable Cost
recorded by the Contractor is recorded and reported correctly.
Audit is conducted for Contractor that is classified in the production phase.
Audit on Recoverable Cost
The goal of Petroleum Fiscal System is to attract investments.◦ Instability in the fiscal system in Indonesia affect the
investment climates◦ Tough PSC terms in Indonesia leads the moral hazard of
the company (such as Cost Recovery)◦ This leads Indonesia create many new regulations come
from other regulators which are not consistent with PSC signed raises the disillusions among the companies.
Petroleum Fiscal System VS Investment Climate in Indonesia
Executive Agency for Upstream Oil and Gas Business Activities: SKKMigas (before BPMigas) is responsible for monitoring implementation and compliance with existing PSCs
BPMigas revised the Work Procedure Manual Supply Chain Management in 2009 for PSCs (current issue: suspense account)
Indonesian Taxation Government Institution gets involved in upstream industries (such as changing in Land Tax regulation)
Government of Indonesia’s Financial and Development Supervisory Board (BPKP), Indonesian Government Audit Institution (BPK) (related to Sunk Cost Audit)
Bank of Indonesia (export sales from this industry , must deposited in Bank of Indonesia)
Upstream industries regulator in Indonesia VS Investment Climate in Indonesia
Indonesia Oil Production VS Investment
Thank you P.S: I am a student as you are.. it means I’m still learning like you are Fasting month is coming, I am sorry for the mistakes I’ve done , and happy fasting month for you guys who’ll celebrate Ramadhan!