Upstream Petroleum Contract

…and its implication to upstream investment

Attractiveness…

BENNY LUBIANTARA
OPEC Fiscal Policy Analyst (Jan 2006 – Feb 2013)

Prepared in January 2020

Upstream Petroleum Contract

2
 Typical Flow Chart of the Usptream Contracts
<simplified>
Concession PSC PSC Indonesia Service Contract
Produksi Produksi Produksi Produksi

FTP FTP
Royalti Royalti FTP KKKS
Negara

Biaya Biaya Biaya Biaya

Bagi Hasil Bagi Hasil

Keuntungan Bagian
Perusahaan Negara

Bagi Hasil Bagi Hasil Bagi Hasil Bagi Hasil Imbalan

Negara KKKS Negara KKKS Jasa

Pajak Pajak
Pajak Pajak

3
3
 Frond-end & Back-end Loaded System

"Front-end loaded system" "Back-end loaded system"

100%
Kumulatif

80%
Government Take (GT)

60%

40%

20%

0%
Signature Discovery Royalty Profit Oil Income Tax Additional Signature Discovery Royalty Profit Oil Income Tax Additional
Bonus Bonus Share Tax Bonus Bonus Share Tax

4
 WHY GROSS SPLIT ??

“Slow Approval Process”

“Cost
Inefficiency”

Cost Recovery Debate/Discussion/Misunderstanding

Has Become Contra-Productive
Cartoon: Courtesy Google 5
 Misunderstanding About Cost Recovery

Concession PSC PSC Indonesia Service Contract

Produksi Produksi Produksi Produksi

FTP FTP
Royalti Royalti FTP KKKS
Negara

Biaya Biaya Biaya Biaya

Bagi Hasil Bagi Hasil

Keuntungan Bagian
Perusahaan Negara

Bagi Hasil Bagi Hasil Bagi Hasil Bagi Hasil Imbalan

Negara KKKS Negara KKKS Jasa

Pajak Pajak
Pajak Pajak

6
6
 The Gross Split is a PSC type, not a Concession type
even though the construction of the flow chart is similar

Concession Gross Split

Gross Gross
Revenue Revenue
Total Bagi
Royalti Hasil
Negara

Biaya Biaya

Keuntungan Keuntungan
Perusahaan Perusahaan
Migas/ KKKS Migas/ KKKS

Pajak Pajak

7
7
 Royalty Rate Worldwide

Sumber: EY, Global Oil and Gas Tax Guide 8

Misleading ?

9
Contractor’s Split

10
Launching of MR 52/2017
Improvement of PSC Gross Split
Jakarta, 8 September 2017

12
POTENTIAL INVESTOR:

The most important thing,

what is my final split??
 ZERO SUM GAME ??

% %

% %

14
Access to
Gross
Revenue
 Access to Gross Revenue - PSC

Government Contractor Gross Revenue

After Tax Split 70% 30% 100
Tax rate 40%
Before Tax Split 50% 50% FTP Government FTP FTP Contractor
DMO Fee 25% 7.5 15 7.5
FTP 15%
Costs
Cost to Gross revenue 40% 40

ETS
45

Government Share Contractor Share

22.5 22.5

(+) DMO Volume (-)

12.5
AGR = GR – Before Tax FTP Government (-) DMO Fee (+)
3.125
Taxable Income
Tax Payment 20.625
8.25

Government Take Contractor Take

47.625 12.375

Contractor Entitlement
52.375
 Access to Gross Revenue - GS

Gross Revenue
100

Government Share Contractor Share

26 74
Parameter Variabel Split
Kondisi (Pilih Kondisi) Penyesuaian Split
Cost Deduction Block Status POD I 5.00%
40 Lokasi Lapangan Onshore 0.00%
Kedalaman Reservoir <= 2500 m 0.00%
(+) DMO Volume (-) Infrastruktur New Frontier Onshore 4.00%
18.5 Reservoir Condition Conventional 0.00%
CO2 5%<x<=10% 0.50%
(-) (+)
DMO Fee H2S 100 <= x < 1000 1.00%
4.625 Specific Gravity Minyak (API) > 25 0.00%
Taxable Income Local Content 50%<=x<70% 3.00%
Tax Payment 20.125 Production Phase Primary 0.00%
8.05 Penyesuaian Split: 13.50%

Tambahan Split
Government Take Contractor Share (Diskresi) 0.00%
47.925 12.075

Contractor Entitlement Gas Price ($/mmbtu) 6

52.075 Oil Price ($/barrel) 65
Progresif Gas Price 2.5%
Progresif Oil Price 5.0%

AGR = Total Contractor Share Cumulative Production

Criteria Cont. Split
<30 mmboe 10.00%
= Base Split + Variable Split + Progressive Split 30≤x<60 mmboe 9.00%
60≤x<90 mmboe 8.00%
90≤x<125 mmboe 6.00%
125≤x<175 mmboe 4.00%
≥175 mmboe 0.00%
 Access to Gross Revenue - GS
Gross Revenue
100

Government Share Contractor Share

12 88
Parameter Variabel Split
Kondisi (Pilih Kondisi) Penyesuaian Split
Cost Deduction Block Status POD I 5.00%
40 Lokasi Lapangan Offshore (h>1000m) 16.00%
Kedalaman Reservoir <= 2500 m 0.00%
(+) DMO Volume (-) Infrastruktur New Frontier Offshore 2.00%
22 Reservoir Condition Conventional 0.00%
CO2 5%<x<=10% 0.50%
(-) (+)
DMO Fee H2S 100 <= x < 1000 1.00%
5.5 Specific Gravity Minyak (API) > 25 0.00%
Taxable Income Local Content 50%<=x<70% 3.00%
Tax Payment 31.5 Production Phase Primary 0.00%
12.6 Penyesuaian Split: 27.50%

Tambahan Split
Government Take Contractor Share (Diskresi) 0.00%
41.1 18.9

Contractor Entitlement Gas Price ($/mmbtu) 6

58.9 Oil Price ($/barrel) 65
Progresif Gas Price 2.5%
Progresif Oil Price 5.0%

Cumulative Production
AGR = Total Contractor Share
Criteria Cont. Split
<30 mmboe 10.00%
= Base Split + Variable Split + Progressive Split 30≤x<60 mmboe 9.00%
60≤x<90 mmboe 8.00%
90≤x<125 mmboe 6.00%
125≤x<175 mmboe 4.00%
≥175 mmboe 0.00%
Worldwide Access to Gross Revenue
Worldwide AGR – PSC VS GS

Need
Discretion ??
PROBLEM WITH DISCRETION :

Too Much or
Too Little ??

More Extensive Cost

Discussion/Debate
 Worldwide AGR – PSC
Capital Recovery Period
Typical Contractor Cash Flow

CRP Profit Period

Profit Period
Average
Government Split
Before Tax

Cost Recovery
 Worldwide AGR – PSC

Profit Period
Average
Government
Split Before
Tax
Capital Recovery Period

Costs

Average
Government
Split Before
Tax

Costs
Let investors decide:
Email: bennypetroecon@gmail.com
Benny Lubiantara has almost 30 years’ experience in oil & gas
industry, experienced as a petroleum engineer, involved in the
economics and commercial evaluation of many oil and gas projects.
He is currently working for Indonesian Government Agency for
Upstream Oil & Gas (SKK Migas) as a Head of Division, Technology &
Field Development. Previously, he was an Executive Advisor for
Chairman of SKK Migas (2016); Head of Division, Work Program and
Budget Management (2013 – 2016) which responsible for evaluating
& approving the Work Program and Budget (WP&B), Authorization for
Expenditure (AFE) and the economics aspects of oil & gas fields - Plan
of Development (POD). He had extensive experienced in analyzing the
economics and commercial aspects of global upstream petroleum
contracts, especially during his tenure as a Petroleum Fiscal Policy
Analyst, Energy Studies Department, Research Division, OPEC
Secretariat in Vienna, Austria (2006 - 2013).

He started his professional career in the oil and gas industry in 1990 as
a Petroleum Engineer in US based oil & gas company (Maxus
Southeast Sumatera, Inc.). In 2000, he worked for another US based
oil & gas company (Unocal Indonesia Company) and moved to
BPMIGAS in 2004. He is the author of three books “The Economic
Aspects of Oil and Gas Contracts” (2012), “The Dynamics of Oil and
Gas Industry” (2014), “New Paradigm for Managing Upstream Oil and
Gas Sector and Energy Resilience” (2017). He was also one of the
main contributors of OPEC World Oil Outlook (2009, 2010, 2011,
2012). He was a Chairman of Expert Board, Indonesian Society of
Petroleum Engineers (IATMI) (2014 - 2016). He obtained Petroleum
Engineering Degree from Institute of Technology Bandung (1989),
Bachelor in Economics and Master in Management both from
University of Indonesia (1997). He completed Regular Program Batch
55 from the highly prestigious institute, National Resilience Institute
(LEMHANNAS) in 2016.