Decision-Making Approach in Fiscal Term Change Proposal: Case Study of Java Offshore Production Sharing Contract (PSC) Indonesia

Java Offshore is one of mature oil and gas fields in Indonesia. This working area stretches across West Java Province (Offshore Java). This field has been operation since 1971, with a peak oil production of one hundred seventy-five-thousand-barrel oil per day (175,000 BOPD) in 1984 and four hundred eighty-four million standard cubic feet of gas per day (484 MMSCFD) in 2002. Several big foreign oil companies from the US and Europe have been operating in the Offshore Java working area since the beginning. In 2017, Java Offshore PSC was appointed as operator by Government of Indonesia under Gross Split fiscal scheme, marking it as the inaugural PSC operator in Indonesia to execute this fiscal framework. The subsequent problem for the operator arises while they recalculating economic evaluation utilizing GS framework, as forecast data indicates a negative cashflow commencing in 2025. However, based on company working area resource data, there are still potential significant oil and gas reserves that could be developed until the end of the PSC. Transitioning from GS framework to Cost Recovery model addresses fiscal sustainability for the operator by providing superior cost recovery provisions, reducing tax burdens, and restructuring government-contractor splits in such a way as to enhance profitability for both stakeholders involved. The primary objective of this study is to establish decision-making methodologies to determine which fiscal term is the most suitable for the sustainability of the Java Offshore working area. The project investment decision is based on a strategic perspective utilizing a technical approach and economic evaluation through capital budgeting model indicators, such as Net Present Value (NPV), Internal Rate of Return (IRR), and Profitability Index (PI). The finding shows that Cost Recovery model is the best option for continue the development of Java Offshore working area as well as create an acceptable return for contractor and fair revenue for Government of Indonesia (GoI).