Indonesian government reopens the option of scheme for the oil and gas industry known as cost recovery after having to work under a fixed split-cost system since 2017. Energy and mineral resources (ESDM) minister Arifin Tasrif said currently, both schemes of contracts could be applied in the block auction process.

In a cost recovery-based production-sharing contract (PSC), the government reimburses companies for upstream-related costs in exchange for a higher share for each company’s earnings from exploiting domestic oil and gas blocks. Meanwhile, in the so-called gross split scheme, companies bear upstream costs themselves, but the government receives a smaller cut of revenue determined in advance.

Under the gross-split scheme, profit splits between the government and contractors will “slide” up and down depending on several factors. Some of the factors include the status of the field, location, reservoir depth, reservoir type, amount of carbon dioxide, use of local industrial content and stage of production.

These variables will be added or subtracted from the base calculation, in which the new regulation was set to at least 43% for companies in oil projects and at least 48% in gas projects. Meantime, under the cost recovery scheme, investors were entitled to 15% of the profit of an oil project and 30% of a gas project, with the government scooping up the rest.