KADIN INDONESIA
Indonesian Chamber of Commerce and Industry
Introduced on 12 August 2024, Regulation of the Minister of Energy and Mineral Resources (“Minister”) No. 13 of 2024 (“Regulation 13/2024”) on Gross-Split, Profit-Sharing Contracts (“Profit-Sharing Contracts”) outlines a number of provisions that specifically address the implementation of Profit-Sharing Contracts. It should be noted that various Profit-Sharing Contract related mandates were previously summarized in the following edition of Indonesian Legal Brief (“ILB”): “Conversion from Gross-Split to Cost-Recovery Made Easy”.
In an effort to further clarify the drafting and implementation processes for the above-mentioned Profit-Sharing Contracts, the Minister has now decided to issue Decree No. 230.K/MG.01/MEM.M/2024 (“Decree 230/2024”) on Guidelines for the Implementation and Components of Gross-Split, Profit-Sharing Contracts (“Guidelines”), which has been in force since 19 September 2024.[1]
Outlined comprehensively under the Appendix to Decree 230/2024, the new Guidelines will serve as a reference during determinations of and adjustments to profit-sharing schemes, as outlined under relevant Profit-Sharing Contracts.[2] In this regard, the components of the aforementioned Profit-Sharing Contracts broadly break down as follows:[3]
Against the above backdrop, this edition of ILB offers a concise analysis of the various provisions that have been introduced under Decree 230/2024, specifically as they relate to the following matters:
Details of Profit-Sharing Contract Components
Decree 230/2024 clarifies that the Base Split will be used as the basic reference during determinations of and adjustments to a given contractor’s profit share. In this regard, Decree 230/2024 stipulates the following Base Split for the Profit-Sharing Contract components:[4]
| Recipients | Crude Oil | Natural Gas |
| State | 53% | 51% |
| Contractors | 47% | 49% |
Furthermore, Decree 230/2024 states that the variable and progressive components of Profit-Sharing Contracts, as the core components of Profit-Sharing Contracts, comprise several elements, which must include parameter values and adjustments to the relevant contractor’s profit share.[5] Details of said variable and progressive components are summarized in the following tables:
| Variable Components[6] | ||||
| No. | Component | Component Classification | Parameter Value | Adjustment Amount for Contractor’s Share (%) |
| 1. | Reserve Quantity
(*X - Commercial reserve quantity/mmboc) |
High | (X > 60) | 12 |
| Medium | (20 ≤ X ≤ 60) | 13 | ||
| Low | (X < 20) | 14 | ||
| 2. | Field Location
(*h - Deepest sea depth from well locations/meters) |
Onshore | - | 11 |
| Shallow Offshore | (h < 500) | 12 | ||
| Deep Offshore | (500 ≤ h ≤ 100) | 13 | ||
| Ultra-Deep Offshore | (h > 100) | 14 | ||
| 3. | Infrastructure Availability
(*X - Percentage comparison with existing oil and/or gas infrastructure availability that can be utilized for production infrastructure requirements up to lifting in the field development plan) |
Available | X > 50% | 10 |
| Partially Available | 0% <X ≤ 50% | 11 | ||
| Unavailable | X = 0% | 13 | ||
| Progressive Components[7] | ||||
| No. | Components | Component Classification | Parameter Value | Adjustment Amount for Contractor’s Share (%) |
| 1. | Crude Oil Price
(*X - Monthly weighted average crude oil price, US$/barrel) |
Very Low | (X ≤ 45) | 5 |
| Low | (45 < X < 65) | (-0.25 * X) + 16.25 | ||
| Medium | (65 ≤ X ≤ 85) | 0 | ||
| High | (85 < X < 105) | (-0.25 * X) + 21.25 | ||
| Very High | (X ≥ 105) | -5 | ||
| 2. | Natural Gas Price
(*X - Monthly weighted average natural gas price, US$/mmbtu) |
Very Low | (X ≤ 4) | 5 |
| Low | (4 < X <7) | (-1.6667 * X) + 11.6667 | ||
| Medium | (7 ≤ X < 10) | 0 | ||
| High | (10 < X < 13) | -1.6667 * X) + 16.6667 | ||
| Very High | (X ≥ 13) | -5 | ||
The Profit-Sharing Contract Component Application Scheme
Decree 230/2024 also clarifies that Profit-Sharing Contract amounts must be determined in the following situations:[8]
Furthermore, Decree 230/2024 also provides an illustration of the Profit-Sharing Contract component application scheme, as follows:[9]
| Phase | Conventional Oil and Gas | Unconventional Oil and Gas | |||||||||
| Exploration |
|
||||||||||
| - | Fixed variable components: correction split KKKS (46%) | ||||||||||
| Development (POD) | Encompass:
|
Additional Minister’s profit-sharing | |||||||||
| Commercial Production | Profit-sharing adjustment based on actual conditions | No profit-sharing adjustments | |||||||||
If in-the-field commercialization calculations do not reach the economic value of a given project, then the Minister may provide an additional percentage of the profit share to the contractor.[10] Otherwise, if the field commercialization calculation exceeds the reasonable economic value of a project, then the Minister may provide an additional percentage of the profit share to the state.[11] This profit-share percentage may be granted during the following situations:[12]
Key Takeaways
Through the introduction of Decree 230/2024, businesses engaged in Profit-Sharing Contracts must comply with the component application scheme outlined under the Appendix to Decree 230/2024. Said businesses are also required to adhere to the specified percentage allocations that apply to all stakeholders during each stage, from exploration to commercial production. Furthermore, the methods that should be applied in order to calculate, verify, report and certify the domestic component levels of Profit-Sharing Contracts should align with applicable regulatory frameworks that mandate the use of domestic products within the oil-and-gas industry.[13]
Source: hukumonline.com
National Economy
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