Production Sharing Contract Research Articles

E&P Notes (December 2022)

E&P Notes (December 2022)

E&P Notes (October 2022)

E&P Notes (October 2022)

Unlocking Additional Revenue by Early Deactivation of Condensate Processing Plant: Case Research in Banua Petroleum Company

Banua Petroleum Company holds 20 years of Production Sharing Contract (PSC) to manage Oil and gas field in East Borneo field by Government. The field has been producing hydrocarbons (Natural Gas, Oil and Condensate) for over than 50 years and in its declining phase. By nature, production decline is inevitable even though new wells were drilled and being maintained properly, while production cost increases as the aging of production facility. Refer to production forecast, The Company will deactivate Condensate Processing Plant (CPP) at the end of 2033 as condensate production will be below turn down capacity. While Oil Processing Plant (OPP) can still operate, since oil production will still above turn-down capacity at least until 2038. This study will provide a thorough analysis of CPP’s early deactivation (in 2023) by diverting all condensate production to OPP (instead of CPP), to unlock additional revenue to The Company. Business situation analysis and project economic is done in this study by considering Oil & Condensate’s market price difference and cost of revenue structure changes. Project valuation are calculated by Discounted Cash Flow (DCF) by applying cost-recovery term of PSC. While the risk is assessed by performing simulating uncertainties of parameters and review its sensitivities to the outcome.

CORPORATE SOCIAL RESPONSIBILITY BY FOREIGN DIRECT INVESTMENT IN BLOCK PASE UPSTREAM OIL AND GAS SECTOR, EAST ACEH REGENCY, INDONESIA

This article explains the regulation of CSR and what factors support and hinder the implementation of CSR in foreign direct investment in the upstream oil and gas sector in the Pase Block, East Aceh. The result shows that the implementation of CSR in the Pase Block was not in accordance with Law on Governing Aceh number. 11/ 2006, Qanun Aceh No. 5/2018 on investment, Qanun Aceh Timur Number 12/ 2016 on CSR, Government Regulaiton number 65/ 2016 on the guideline for CSR and ISO 26000, as well as Production Sharing Contract between parties. The company has not implemented CSR in accordance with the laws and regulations due to the lack of commitment of TPI to implement CSR. As a result, the CSR has not positively impacted the economic growth of the community and the environment around the company.

Project Investment Analysis: Case Study of Installation Additional Offloading Pump at B-Field to Recover Oil Production

Oil and gas production in Indonesia keeps declining while consumption increases, resulting in Indonesia being a net oil importer since 2004. The problem that is faced by many producers right now is the mature field with an aging production facility with frequent unplanned shutdowns that could jeopardize production. If not responded to promptly and adequately, the field could lose its production. This is one of the challenges that PT ABC are facing. This study will present an investment project analysis to procure additional permanent offloading pumps at Field-B PT ABC to help revitalize the field after an unplanned shutdown. The additional offloading pump is intended to speed up wells' potential recovery and minimize potential loss after shutting down. Two scenarios are evaluated for the additional offloading pump: buy case or lease case. The investment study is performed by exercising the business situation analysis and then using discounted cash flow (DCF) method for the financial feasibility. From the business situation analysis of PESTEL for external and VRIO method for internal analysis, both analyses suggest the external and internal aspects support the investment project of having the additional offloading pump. The DCF analysis is performed using the Production Sharing Contract (PSC) scheme applied to PT ABC. For the buy case, the Net Present Value (NPV) is 0.89 million $ with Monte Carlo Simulation showing the possibility of having a negative NPV is 7%. For the lease case, the NPV is 2.32 million $ with Monte Carlo Simulation showing the possibility of a negative NPV of 0%. Based on the DCF parameter analysis then, it is suggested to the management of PT ABC to invest in additional offloading pumps at Field-B by using the lease option, which shows better NPV.

Legal complications of stabilization provisions in Iraqi Kurdistan production-sharing contracts

During the period of long-term petroleum contracts, host states may attempt to amend the contractual regulation or even to annul contracts by changing their domestic laws, especially in developing countries. Therefore, to restrict the legislative or administrative power of the host States, the contractors would want the petroleum contracts to contain stabilization provisions. These provisions have been included in production-sharing contracts (PSCs) of the Kurdistan Regional Government (KRG). This study aims to critically analyse stabilization provisions of the KRG’s PSCs in order to ascertain their legal complications when compared to the provisions of several oil-producing countries’ PSCs. Thus, the study poses this question: what are the main legal complications of stabilization provisions of the KRG’s PSCs? The study has clarified that most PSCs of the KRG have adopted full hybrid-stabilization provisions and a few of them have adopted limited hybrid-stabilization provisions that have been drafted very widely and are one of the main legal complications of the KRG’s PSCs. Finally, it is suggested that the KRG push back on widely drafted stabilization provisions and adopt limited stability provisions or attempt to extricate PSCs from these provisions. Abstract in Kurmanji Tevliheviyên qanûnî yên bendên îstîkrarê di peymanên parvekirina-hilberandinê yên Kurdistana Iraqê de Di dema peymanên petrolê yên demdirêj de, welatên mêvandar dibe ku hewl bidin rêziknameyên peymanan biguherînin û heta peymanan betal bikin bi rêya guhertina qanûnên xwe yên navxweyî, bi taybetî jî li welatên pêşketinê. Herwiha, ji bo sînorkirina hêza qanûnsazî an jî rêveberî ya dewletên mêvandar, peymandar dê bixwazin hin bendên îstîkrarê bixin nav peymanên petrolê. Ev bend di nav peymanên parvekirina-hilberandinê (PPH) yên Hikûmeta Herêma Kurdistanê (HRK) de hatine bicihkirin. Ev xebat hewl dide ku bi awayekî rexneyî bendên îstîkrarê yên PPHyên HRKê vekolîne da ku tevliheviyên wan ên qanûnî diyar bike bi rêya berawirdkirina PPHyên çend welatên hilberînerên petrolê. Bi vî awayî, xebat vê pirsê dike: Tevlîheviyên qanûnî yên bingehîn yên bendên îstîkrarê yên PPHyên HHKê çi ne? Xebatê zelal kiriye ku piraniya PPHyên HHKê bendên îstîkrarê yên bi temamî dureh qebûl kirine û kêm ji wan bendên îstîkrarê yên dureh ên sînorkirî qebûl kirine ku gelek bi berfirehî hatine nivîsandin û yek ji bingehîn tevlîheviyên qanûnî yên PPHyên HHKê ne. Di dawiyê de, hatiye pêşniyarkirin ku HHK ji bendên îstîkrarê yên bi berfirehî diyarkirî vekişe û bendên îstîkrarê yên sînorkirî bipejirîne an jî van bendan ji PPByan derxe. Abstract in Zazaki Zehmetîyê qanûnî yê hukmanê îstîqrarî yê kontratanê parekerdişê berardişî yê Kurdîstanê Îraqî Demê kontratanê petrolî yê wextdergan de beno ke dewletê pêşkêşkerî, bitaybetî dewletê averşîyayoxî, biceribnê qanûnê xo yê zereyî bivurnê û wina madeyanê kontratan zî bivurnê yan zî kontratan bi xo betal bikerê. Coka, seba ke îmkananê dewletanê pêşkêşkeran ê qanûnî û îdarîyan sînor bikerê, mutahîdî wazenê ke zereyê kontratanê petrolî de hukmê îstîqrarî est bê. Nê hukmî daxilê kontratanê parekerdişê berardişî (PSC) yê Hukmatê Herêma Kurdîstanî (KRG) bîyî. No cigêrayîş hedef keno ke nê hukmanê îstîqrarî yê PSCanê KRG bi çimeyo rexnegir analîz bikero û zehmetîyanê înan ê qanûnî goreyê hukmanê PSCanê welatanê petrolvetoxanê bînan ra tesbît bikero. Coka, no cigêrayîş nê persî pers keno: zehmetîyê qanûnî yê hukmanê îstîqrarî yê PSCanê KRG çi yê? Cigêrayîşî vet meydan ke zafêrîya PSCanê KRG hukmê îstîqrarî yê tam-hîbrîdî qebul kerdî û ci ra tayîne kî hukmê îstîqrarî yê hîbrîdê sînorkerdeyî qebul kerdî ke bi hewayêko zaf hîra virazîyayê û zehmetîya qanûnî ya bingeyêne yê PSCanê KRG yê. Peynîye de, pêşnîyaz beno ke KRG hukmanê îstîqrarî ke bi hewayêko hîra virazîyayî, ver bi vejîyo û hukmanê îstîqrarî yê sînorkerdeyan qebul bikero yan zî biceribno ke PSCan nê hukman ra vejo. Abstract in Sorani Available in Print and PDF versions.

The profit petroleum-sharing arrangement: legal complications of profit petroleum-sharing provisions of the Kurdistan Region production sharing contracts

Abstract The method for sharing the profit petroleum between the host State and the contractor is one of the major topics in Production Sharing Contracts (PSCs). Profit petroleum generally can be split between a contractor and the host State based on fixed shares or the sliding scale method. This study has the principal aim of critically analysing and arguing the provisions of the Kurdistan Region utilized PSCs regarding profit petroleum-sharing arrangement in order to ascertain its legal complications. This study also aims to seek some alternatives that can be useful and adopted by the Kurdistan Regional Government (KRG) to make more profit and reduce the burden on the government. The Study has clarified that the KRG’s Model PSC and most of its PSCs have adopted the R-factor formula for sharing of profit petroleum that derives from the Kurdistan Region Oil and Gas Law No (22) of 2007. The adopted R-factor is not an appropriate method and its calculation and the contractor percentage share of profit petroleum varies in the signed PSCs. On the other hand, a number of the KRG’s PSCs, contrary to the stipulated R-factor formula in the Kurdistan Region Oil and Gas Law 2007, have adopted different formulas. Finally, the study propounds numerous recommendations for the Kurdistan Region to minimize legal contentions relating to the profit petroleum-sharing arrangement of the Kurdistan Region.

Application of the Delayed Royalty Framework for Onshore Petroleum Investment in Nigeria Using the 1993 Production Sharing Contract

The 1993 production sharing contract (PSC) in Nigeria specifies different royalty rates for oil and gas investment. The royalty rates were fixed. This makes the fiscal arrangement to be regressive in nature. Royalty rate of 20% is to be paid for onshore investment using the 1993 PSC. Hence, there is a need to make the fiscal arrangement progressive. The delayed royalty framework was incorporated into the1993 PSC as a progressive measure to make it dynamic. Two economic models were developed using spreadsheet technique to evaluate the impact of the delayed royalty framework on onshore petroleum investment. The 1993 PSC fiscal framework was used to develop the economic models. The delayed royalty framework was incorporated into one of the models. The delay in royalty payment hinged on the payout period of the investment. It was observed that the delayed royalty framework increased the contractor’s revenue during the period of low oil price. Thus, increasing the sustainability of the investment during period of low oil price.

Application of the Delayed Royalty Framework for Onshore Petroleum Investment in Nigeria Using the 1993 Production Sharing Contract

Application of the Delayed Royalty Framework for Onshore Petroleum Investment in Nigeria Using the 1993 Production Sharing Contract

E&P Notes (February 2022)

E&P Notes (February 2022)

Standardization of Technical Specifications and Budget of Charter Rate in Indonesian Oil & Gas Upstream Operation Support Vessel

Special Task Force for Upstream Oil and Gas Business Activities (SKK Migas) is an institution tasked with managing upstream oil and gas business activities based on Production Sharing Contract (PSC). In carrying out technical evaluations and budget recommendations, there are often differences in specifications and budgets between PSC Contractors. In order to reduce the problems mentioned above, it is necessary to standardize technical specifications and charter rates for operations support vessels which will later be used as the basis for evaluating technical specifications and recommendations for charter budgets, for preparing owner estimates as the basis for negotiations in the ship procurement process. The problem-solving methodology adopted in this research is to collect data on operations support vessels in PSC Contractors and then evaluate the data with Multi Criteria Decision Making (MCDM) through the Elimination Et Choix Traduisant la Realite (ELECTRE) method, then the results will be analysed qualitative data, to further develop a standard technical specification and recommendation for vessels charter rates for each type of vessel.

E&P Notes (December 2021)

E&P Notes (December 2021)

E&P Notes (November 2021)

E&P Notes (November 2021)

Contractual Systems in the Oil and Gas Sector: Current Status and Development

Production activities in the oil and gas industry are capital-intensive and associated with high technology, with these assets not always being available to oil-producing countries or national companies. Any form of interaction between the parties involved in natural resource extraction requires clear regulation regarding contractual relationships. This study attempts to analyze Indonesia’s production sharing contract system in order to assess its applicability to other conditions. The article covers the key aspects of contract theory, provides a classification of contractual systems in the oil and gas sector, and discusses the most common types of contractual agreements. It also considers the key principles of production sharing contracts (PSCs), analyzes the development of PSC practices in Indonesia over the past sixty years, and highlights PSC advantages and disadvantages.

PRODUCTION SHARING CONTRACT: IS IT WITHIN PRIVATE OR PUBLIC DOMAIN?

Investment is always requires government attention including on the oil sector. Production Sharing Contract (PSC) is an agreement constitutes the regime of utilizing the interest of state is constitutionally used to the greatest possible extent for the prosperity of the people. PSC is part of Foreign Direct Investment (FDI) since it involves the private equity of foreign investors. Thus, PSC in one hand is a private contract and it belongs to the private domain, in the other hand, state as the owner of natural resources is act as a party in this business transaction. This paper discusses Production Sharing Contract, whether it is in private or public domain.

Seismic Expression of Paleogene Talangakar Formation - Asri & Sunda Basins, Java Sea, Indonesia

The Asri and Sunda Basin are located offshore Southeast Sumatra under the SE Sumatera Production Sharing Contract (PSC). Currently, Pertamina Hulu Energi OSES operates in the Asri and Sunda Basins, known as Southeast Sumatra (SES) Block. As one of Indonesian prime oil and gas producing area in the past 50 years, these basins have produced cumulatively more than 1,500 MMBOE with an average of 90,000 BOPD. Both Asri and Sunda Basins are part of a series of Cenozoic half grabens developed on the Asian continental margin, that have occupied a retro arc setting since early Neogene times.Hydrocarbon exploration activities in the offshore southeastern Sumatra began with a signed agreement of Contract Sharing between IIAPCO (Independent Indonesian American Petroleum Company) and Pertamina on 6 September 1968.The contract area included the offshore areas east of Sumatra and south of Bangka - Belitung Islands, covering an area of 124,000 km2. After the final relinquishment in 2008, the current PSC boundary covers an area of 5,851 km2.This paper presents the results of integrated petroleum geosciences framework, its implications for Oligo-Miocene reservoirs and hydrocarbon prospectivity of the basins using near field exploration approaches. A four-fold division comprising rift initiation, rift climax, immediate post rift and late-post rift stages of basin evolution characterize the basin filling. Seismic expression of these kinematic units gives an idea about the linkage of their deposition with different stages of rift evolution. The present study has also identified a new potential play concept in Oligo -Miocene reservoirs.

DUALISME KETENTUAN COST RECOVERY SEBAGAI DASAR PUNGUTAN NEGARA PADA INDUSTRI HULU MIGAS

This article traces and describes the changes made from time to time, to the calculation and determination of government share, as obtained from corporate revenues and tax deducted based on Production Sharing Contract, as used in the Indonesian natural gas and oil sector. Qualitative data is gathered by performing a legal audit and literature review. The issue discussed here is the disagreement existing between the government and contractor regarding the calculation of recoverable cost (based on the Production Sharing Contract) and amount of corporate income tax imposed based on the prevailing tax law. Based on the review of legal materials and literature, the recommended action is to harmonize these two different tax-revenue schemes.

NIGERIA DEEP OFFSHORE INLAND BASIN PRODUCTION SHARING CONTRACT ACTS: EVALUATING CONTRACTOR’S TAKE

Value-focused thinking is often designed to focus our decision on the essential activities that must occur prior to solving a decision problem. This approach was adopted by the Nigerian government in the fiscal legislation for Deep Offshore and Inland Basin Production Sharing Contract (DOIBPSC) Act enacted in 1999 and the subsequent amendment of 2020. One major item of interest in the amended Act is the introduction of royalty by price to enable the government to capture windfall in high oil price spike. This study evaluates the new fiscal regime to ascertain its attractiveness and impact of contractor take. Four features (royalty, cost recovery, tax oil, and profit oil) of the PSC contract terms were used to determine contractor and government takes from the transactions. This study adopted the full range of oil prices captured in the amended DOIBPSC Act in addition to the current market price of oil estimation. Six ranges of oil price ($ 20/bbl, $ 30/bbl, $ 40/bbl, $ 80/bbl, $ 120/bbl, $ 160/bbl) were used to cover the five royalty sliding scales adopted in the amended DOIBPSC and the current oil price during this study which is ≤ $ 20/bbl. From the econometric analysis, estimates from the unit root tests revealed that the time series data are mixture of I(0) and I(1) series. The ARDL/bound cointegration test result shows that all the integrated variables are cointegrated at a 5% level. Analysis of the impact of the price sliding royalty regime on the contractors' take shows that in both the long run and the short run, the price sliding (royalty by price) regime had a negative impact on the contractors' take. The short-run impact of the royalty level and the regime change on the contractor's take is high and significantly negative. This is expected as the design of the royalty regime is based on long term benefits. Keywords: Deepwater fiscal system; Royalty regimes; Production sharing contract; Oil and Gas; Long and short runJEL Classifications: P28, O22, O38DOI: https://doi.org/10.32479/ijeep.11244

A petroleum upstream production sharing contract with investments in renewable energy: The case of Lebanon

Developing countries endowed with petroleum resources face various challenges in balancing their economic development needs and their contribution to combating climate change. They aim at increasing their reliance on renewable energy; however, they are faced with regulatory, financial, technical, and knowledge-related barriers. Many oil and gas companies started to transition from their core business in oil and gas to the wider energy field. In this paper, we show how the most common contractual arrangement between developing countries and oil and gas companies - the Production Sharing Contract (PSC) - can be modified to include renewable energy elements. We introduce a Renewable Contribution parameter that defines the share of the company profit petroleum that should be re-invested in renewable energy in the host country and we develop an optimization model that defines the state objective function and constraints. We apply the modified PSC to the case of Lebanon after populating various oil and gas and renewable energy scenarios. We show that a limited Renewable Contribution of 10% can provide a large share of the investment needs of the renewable energy sector and can contribute to emission reduction, economic development and job creation while providing companies with attractive economic incentives.

IMPACT OF PRODUCTION SHARING CONTRACT PRICE SLIDING ROYALTY: THE CASE OF NIGERIA’S DEEPWATER OPERATION

Petroleum fiscal regime has been a controversial issue in Nigerian economy. The basic issue is which regime will lead to the greatest benefit to the government without negatively affecting the performance of the international oil companies. Nigeria has in the past used different regime and had adopted the current price sliding royalty regime in 1996. The aim of this study is to examine how the new price sliding royalty affects the stake of government and contractors. This study adopts ex-post research design approach using data from various sources between 1980 and 2019. The autoregressive distributed lag (ARDL) regression approach was adopted for the data analysis. The unit root results reveal that the time series data consists of a mix of I(1) and I(0) variables. The ARDL bound cointegration test shows that all the variables specified in the models have long run relationship. Estimates from the models indicate that the royalty regime in the Deep Offshore and Inland Basin Production Sharing Contract has positive and significant impact on the stake of government in the long and short runs, but negative impact on the stake of contractors. Furthermore, the royalty regime has negative impact on contractors’ performance in the long run. However, the impact on the three fiscal indicators (oil revenue, government expenditure, and deficit-GDP ratio) is positive. The study therefore recommends the repeal of the Nigerian petroleum fiscal policy with the new price sliding royalty to encourage investment and development of the petroleum sector.