The NOC acquires the know-how they need from the international oil companies (IOCs) with which the agreement is signed. IOCs generally put technology and know-how on the table in strategic decision-making. In many respects, most of the risks associated with oil and gas extraction fall under the IOC`s jurisdiction under these agreements. Types of agreements in oil and gas exploration and production that Microsource Group enters into companies with sub-sectors according to the project: One of the restrictions imposed by the Indonesian government in upstream oil and gas activities is their ability to take significant risks, the congenital risk turning mainly in the exploration phase. Once profitable economic reserves are discovered, the production phase begins. At the production stage, mineral resources have surfaced to go through processes before being available for sale. One of the common production-sharing contracts is that ownership of minerals remains in state hands until the “delivery point.” This is where the distribution of production between the two parties is recognized. Some of the arguments go back to when the agreements were in effect. Changes in personnel and processes on both sides can change the understanding of the language of the treaty. Changes in tax practices or political problems in the country can cause other problems. Enterprise or subcontracting agreements and non-aligned business cycles are the source of a few.
Currently, about 100 upstream oil and gas companies operate in Indonesia. These companies are considered “contractors” because they are tasked with cooperating with the Indonesian government to detect and exploit untapped oil and gas reserves within their borders. There are uncertainties about the operation of the incentive contract or CSP between the contractors and the government. In most cases, a good size of the uninformed population would result in misleading conclusions about how the country`s precious natural resources are managed. The meaning of nationalism begins to enter within a minute of the subject, is discussed. Many say that in 1945 the country may have gained independence from the Dutch, but energy resources are still controlled by foreigners through their multinationals. That is the point of view that needs to be built. As mentioned earlier, PSAs can be complicated. The parties often disagree on different parts of the contract. Given that both parties are trying to maximize revenue and minimize risk, it is not surprising that agreements that seemed fairly clear at the time of signing receive different interpretations of a stressed party. Essentially, the CSP framework allows the government to allow contractors to bear the full risk of the exploration phase. The exploration phase is the phase where the risk of failure is highest.
The failure rate at this stage is reported up to 50%. Committed contractors must account for all exploration expenses with no guarantee of success to find profitable economic reserves. The framework will also allow the government to maintain the ability to manage the fields in partnership with contractors, as well as the ownership of the ores to the point of delivery. The other issue in this context is the concept of “cost recovery” that the government will cost contractors once a profitable economic reserve has been discovered. Another key feature of the cost recovery program is that the costs of previous exploration activities and the production costs incurred by contractors are offset over the years by the sale of oil and gas extraction. One way to overcome this misunderstanding among citizens is to fully understand the concept of a PSC framework to which most contracting companies are linked.