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Oil & Gas Industry: Understanding Indonesia's Cost Recovery Scheme

Because we have received quite some questions about Indonesia's cost recovery scheme in the oil and gas industry, we decided to devote an article to this topic. Simply put, the oil recovery scheme that the Indonesian government applies in the upstream oil and gas industry concerns the reimbursement of exploration and production costs to oil and gas contractors. This should make oil and gas exploration in Indonesia more attractive and thus stop the two-decade long decline in the nation's oil output.
In the upstream sector the Indonesian government owns the oil and gas resources. However, it needs contractors (either private or state-owned companies) to explore and exploit these resources. In line with the contracts signed between the oil and gas contractor and the Indonesian government, the former needs to bring capital in order to finance the exploration and exploitation activities. These expenses made by the contractor will be reimbursed by the central government using a specific government budget.
As such, from the viewpoint of the central government, the cost recovery scheme can be regarded an investment. It makes oil and gas exploration in Indonesia more attractive for private companies (once production starts the government can collect good earnings through the production sharing contracts). Moreover, a multiplier effect is felt locally as other sectors - related to oil and gas exploration - will also see more activity. This includes shipping, banking, and oil and gas support services companies.
Oil and gas exploration is a risky affair (and long-term in nature). It is estimated that between 2002 and 2016 nearly USD $4 billion was spent - in vain - by oil and gas companies in the exploration stage in Indonesia without finding reserves suitable for commercial exploitation. It is important to note that the government will only reimburse exploration costs under the oil recovery scheme in case the contractor indeed finds enough reserves that can be exploited. Without economically viable reserves the government will not reimburse anything (as such, all the risks are borne by the contractors).
In fact, the oil cost recovery comes in the form of production sharing contracts, not in the form of cash transfers. Under the standard production sharing contract, oil and gas companies will recoup their costs of exploration, development and operation out of gross production.
It is not a strange matter that Indonesia's oil and gas production declines while the cost recovery budget grows (although the House of Representatives and Ministry of Energy and Mineral Resources agreed to slash the cost recovery budget in the 2016 State Budget). Firstly, most of Indonesia's oil production originates from maturing oil fields that are characterized by declining output while production costs do not fall accordingly. Secondly, the oil recovery budget not only covers costs made in a specific year, but also costs in the preceding years (it can take several years of exploration and investment before production can start).
Indonesia's upstream oil & gas regulator (SKK Migas) monitors the cost recovery through the centralized and integrated vendor database (CIVD). Post audits are also conducted by the Supreme Audit Agency (BPK). Occasionally authorities and firms cannot agree on the amount of cost recovery. For example, earlier this year, the BPK reported that several oil and gas production sharing contractors deliberately inflated the reimbursement of their operating cost claims.
Source: http://www.indonesia-investments.com/business/business-columns/oil-gas-industry-understanding-indonesia-s-cost-recovery-scheme/item7249?



Oil Industry Growing Again After Losing Half-million Jobs

The oil industry is expected to boost spending for the first time in three years after slashing almost half a million jobs globally during the downturn, according to industry consultant Graves & Co.
More than three quarters of the 440,131 oil jobs eliminated around the world through the end of 2016 came from the oilfield service providers, drilling contractors and equipment makers, said John Graves, whose Houston firm assists in oil and gas deals with audits and due diligence. He has tracked announcements of layoffs from all parts of the oil industry since the downturn began in the middle of 2014. Roughly a third of the cuts came in the U.S., Graves estimates.
Oil companies are starting to hire back workers as they add rigs to the shale patch in North America to take advantage of oil prices above $50/bbl. After unprecedented spending cuts over the past two years, explorers are forecast to boost capital expenditures by 7% this year, David Anderson, an analyst at Barclays, wrote Monday in a note to investors.
The number of U.S. workers employed in the oil and gas extraction industry has increased slightly after hitting a five-year low in July, according to the Bureau of Labor Statistics.
“Aggressive cost cutting this downturn has reversed much of the ‘boom town’ employee-related inflation,” Anderson said in the note. “Attrition of qualified labor into less cyclical industries with greater job security, more stable income and better work/life balance could create cost inflation and bottleneck in a sharp recovery.”
After the world’s four largest service companies spent $3.12 billion in severance costs over the past two years, the industry is acutely aware of the heavy reliance on manpower in the oil patch, Art Soucy, president of products and technology for Baker Hughes, said last month at an investor meeting.
The Graves estimate for job cuts is 25% more than a report he issued in May, when total headcount reductions topped 350,000 during the downturn.
Explorers and producers were responsible for 90,480, or 21%, of the layoffs, Graves said Monday. Companies in the refining sector accounted for just 3% of the workforce shrinkage.
West Texas Intermediate, the U.S. crude benchmark, has nearly doubled since closing at a low in February last year. Explorers in the U.S. have already added more than 100 rigs since September.
Source: www.worldoil.com

Indonesian Invites Iran To Invest in Refinery Business

The government has called on Iran to invest in Indonesia’s oil refinery projects as the oil-rich country can supply local refineries from its reserves.
"We have asked [Iran] to invest either in Bontang refinery [in East Kalimantan] with [state-owned oil and gas firm] Pertamina or establish its own refinery as we already allow 100 percent [foreign] ownership in the business," Energy and Mineral Resources Ministry director general for oil and gas IGN Wiratmaja Puja said on Monday.
The request, Wiratmaja said, had been conveyed last week to a visiting Iranian delegation led by Communications and Information Technology Minister Mahmoud Vaezi.
Wiratmaja added that Indonesia currently bought liquefied petroleum gas (LPG) from Iran and was also planning to buy crude oil from there as well.
"Should Iran invest in refineries here, it can supply the refineries with its crude oil," he said.
Previously, the government successfully invited Saudi Arabia’s Aramco to invest in the Cilacap refinery revitalization project in Central Java. After the plant begins its operations in 2022, Aramco will supply most of its crude oil.
Souce: http://www.thejakartapost.com/news/2016/11/28/indonesia-invites-iran-to-invest-in-refinery-business.html 

Tenaga Kerja Indonesia Dominasi Industri Hulu Migas

Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi (SKK Migas) menunjukkan komitmennya untuk tetap mengoptimalkan penggunaan Tenaga Kerja Indonesia (TKI) dalam kegiatan operasi Kontraktor Kontrak Kerja Sama (Kontraktor KKS). Selama delapan tahun terakhir, SKK Migas berhasil mempertahankan rasio penggunaan Tenaga Kerja Asing (TKA) tidak lebih dari 4%.
“Sesuai tugas pokok dan fungsi yang diemban untuk mengelola kegiatan industri hulu migas nasional,SKK Migas berkomitmen penuh untuk mengembangkan kapabilitas dan kapasitas Nasional dalam bidang Sumber Daya Manusia,“ ujar Kepala SKK Migas Amien Sunaryadi saat membuka acara Rapat Kerja Komunitas SDM Hulu Migas Nasional SKK Migas – Kontraktor KKS 2016 (HR Summit 2016), di Bandung, Rabu (5/10).
Data SKK Migas menunjukkan pada tahun 2015, jumlah TKI pada industri hulu migas mencapai 31.742 ( sekitar 97%) orang sedangkan jumlah TKA hanya 1.022 (sekitar 3 %). Jumlah penggunaan TKI selama 10 tahun terakhir memang mengalami kenaikan seiring dengan bertambahnya kegiatan operasi yang ada di Kontraktor KKS. Sebaliknya, tren penggunaan TKA selama 10 tahun terakhir cenderung konstan, meskipun banyak proyek besar yang saat ini sedang berlangsung.
Komitmen mengoptimalkan TKI tetap dipegang SKK Migas setelah berlakunya Masyarakat Ekonomi ASEAN (MEA). Bentuk komitmen tersebut antara lain dengan membentuk Lembaga Sertifikasi Profesi HULU MIGAS (LSP HULU MIGAS) yang mewadahi kegiatan pengembangan kompetensi SDM Hulu Migas Nasional melalui program sertifikasi kompetensi-kompetensi yang ada pada kegiatan industri hulu migas. Pada saat ini profesi di bidang Supply Chain Management (SCM) sedang dilakukan sertifikasi. Sedangkan untuk profesi Pengawas Lifting dan SDM sedang dipersiapkan oleh Tim dengan bekerjasama dengan LSP HULU MIGAS.
HR Summit merupakan kegiatan rutin yang diselenggarakan SKK Migas dan Kontraktor KKS. Tema yang dipilih tahun ini adalah “Creative HR Interventions in New Normal Business Situation”. Pilihan tema ini relevan dengan tantangan yang dihadapi industri hulu migas saat ini di tengah rendahnya harga minyak dunia. Amien mengatakan di tengah situasi penuh tantangan ini, praktisi SDM dituntut untuk dapat secara pro-aktif memberikan solusi KREATIF terkait manajemen SDM, karena akan sangat membantu bisnis dalam mencapai tujuannya. Dikatakannya, kondisi saat ini meletakkan manajemen SDM Nasional dalam suatu situasi yang New Normal, yaitu suatu situasi yang didefinisikan sebagai suatu keadaan standar bisnis yang berbeda atau berubah, menggantikan standar-standar yang berlaku sebagai acuan sebelumnya.
“Standar-standar baru perlu dianalisis dan ditetapkan oleh organisasi dalam menyikapi terjadinya perubahan dari eksternal organisasi,” ujarnya.
The new normal tidak hanya relevan bagi profit oriented organizations namun juga berlaku bagi SKK Migas. Sebagai pengemban amanat dari Undang-Undang dan Pemerintah untuk mengelola industri hulu minyak dan gas bumi berdasarkan Kontrak Kerja Sama, SKK Migas tidak pernah berhenti untuk berbenah diri. Keputusan untuk menyederhanakan birokrasi dan mendigitalisasikan berbagai kegiatan administrasi yang kami mulai lebih dari satu tahun yang lalu merupakan bentuk “the new normal” bagi SKK Migas untuk meningkatkan kecepatan respon dan pengambilan keputusan.
Source : http://www.skkmigas.go.id/tenaga-kerja-indonesia-dominasi-industri-hulu-migas

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