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Comparative analysis of financial Production Sharing Contract (PSC) cost recovery with PSC gross split: Case study in one of the contractor SKK Migas

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  • Budhi Refa Anjani

    (Master’s Program in Management of Technology, Institute Technology Sepuluh Nopember, Surabaya, Indonesia)

  • Imam Baihaqi

    (Departement of Industrial Engineering, Institute Technology Sepuluh Nopember, Surabaya, Indonesia)

Abstract

This research explores two schemes of oil and gas Production Sharing Contract (PSC). First, Cost Recovery (old scheme) that the investor earned a production cost refund. While the second scheme is Gross Split (new scheme), which is the production sharing system without cost of recovery. The Gross Split scheme was implemented by the Minister of Energy and Mineral Resources, Ignatius Jonan in early 2017 in response to the concerns of People's Representative Council (DPR) Commission VII that the Cost Recovery scheme was no longer profitable for the government. Thus, there should be a new one which is better, beneficial, yet attractive to investors to entrust Indonesian oil and gas business. The study was conducted at PT XYZ, the first PSC Company which implemented Gross Split scheme after its contract period under the Cost Recovery scheme ended in January 2017. The study focuses on two cases of offshore oil and gas development projects, X and Y, by using economic capital budgeting indicators, such as NPV, IRR, and Payback Period. In addition, oil and gas fiscal calculations are done equally with Net Contractor Take and Government Take, then analyzed the sensitivity of the variable that affects its economic project. The results showed that Gross Split scheme projects have better NPV and IRR values than the Cost Recovery scheme. As for Payback Period, both schemes had the same value. This means that the economic value of Gross Split scheme project is better. However, it turns out that the Government Take value is much smaller. While from the sensitivity analysis, the amount of production and price is very sensitive to both economic projects as well as the widespread on the Gross Split scheme. It can be concluded that the PSC Gross Split scheme will benefit the Contractor if it is accomplished with good planning of WP&B (Work Program & Budgeting), accurate calculation of oil and gas reserve, timely development of oil and gas facilities, along with the efficient use of production costs. For the government, although the income is smaller, on the other hand, it is no longer burdened with cost recovery of production which has been disrupting state's finance in the development of exploration and domestic oil and gas production.

Suggested Citation

  • Budhi Refa Anjani & Imam Baihaqi, 2018. "Comparative analysis of financial Production Sharing Contract (PSC) cost recovery with PSC gross split: Case study in one of the contractor SKK Migas," Journal of Administrative and Business Studies, Professor Dr. Usman Raja, vol. 4(2), pages 65-80.
    • Handle: RePEc:apb:jabsss:2018:p:65-80
    DOI: 10.20474/jabs-4.2.2
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    References listed on IDEAS

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    1. Naoyuki Yoshino & Victoriia Alekhina, 2016. "Impact of oil price fluctuations on an energy-exporting economy: Evidence from Russia," Journal of Administrative and Business Studies, Professor Dr. Usman Raja, vol. 2(4), pages 156-166.
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    2. Eunice Lagrimas Lluz, 2019. "Economic Assessment of Hog Raising in Different Types of Housing," International Journal of Applied and Physical Sciences, Dr K.Vivehananthan, vol. 5(1), pages 20-27.
    3. Fouzan Al Qaisi, 2019. "The Relationship Between Cash Flow and Profitability of Insurance Companies listed in Amman Stock Exchange in Jordan," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(1), pages 51-60, 01-2019.

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