Country Profile
Petroleum Geology & Potential
Exploration/Development History
Present Status
Offered Acreage
Contract Terms
Production Sharing Basic Term
Contract of Work (COW)
Production Sharing Contract (PSC)
Technical Assistance Contract (TAC)
Joint Operation Assistance (JOA)
Enhance Oil Recovery (EOR)
Flow of Revenue of PSC
Exploration Incentive Package
Bidding Procedure
Other Information
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  Production Sharing Basic Term
         There are some principles underlying the Production Sharing Contract:
  1. Production Sharing Contract was setup within the concept of the Indonesian Law No.44/Prp/1960, Law No. 8/1971, Law No.7/1983 and Ministerial thereto.
  2. Pertamina on behalf of the Government of Indonesia shall be responsible for management of the operations in the Contract Area.
  3. CONTRACTOR shall be responsible for the execution of the operations, and shall provide all foreign exchange, technical assistance and carry the risk of all exploration costs.
  4. Indonesian participation: 10%.
           The Government of Indonesia/PERTAMINA in securing its objectives as well as the Contractor's under said dynamics, has from time to time modified the PSC, not in terms of its principle features, but more in its fiscal terms. Such modifications were made to adopt to prevailing situational issues, such as fluctuation in crude oil price, taxation, etc., as well as to non-situational factors such as the natural conditions of the acreage implying the risk and cost of exploration.
There are five arrangements of the contract as follows:
1. Contract of Work (COW)
  • Companies are Contractors to Pertamina
  • Contractors are responsible for management and operation
    • 60% of balance is paid to the Government
    • 25% of the 40% is taken for Domestic Market Obligation
    • (DMO) @ US$ 0.20/bbl reimbursement
  • Minimum Government income is 20% of the total revenue
  • This type of contract is no longer applied.

2. Production Sharing Contract (PSC)

  • Corporative agreement in the sector of oil and natural gas between Pertamina and foreign capital investor, in which:
    • Pertamina is the management
    • Related foreign oil company is contractor responsible to Pertamina
    • Sharing is made on production, not on profit
    • Title to contractors portion of crude oil and gas (cost and entitlement oil/gas) shall pass to contractor at the point of export or point of delivery
    • Laws, decrees, regulations and decisions of Republik of Indonesia shall be applicable
3. Technical Assistance Contract (TAC)
  • Sharable crude is crude other than primary crude
  • Cost of equipment and services for the primary crude will become part of the operating cost
  • Maximum operating cost is 60% of total sharable lifting cost
  • On obligatory DMO contribution @ 15% export price is taken from the contractor's share. After cost recovery:
    • Pertamina : 85%
    • Contractor : 15%
4. Joint Operation Assistance (JOA)
  • Pertamina holds 50% participating interest
  • The participating interest of contractor is subject to the same terms and split as used in the PSCs
  • Pertamina is the operator assisted by the contractor in the form of a Joint Operating Body (JOB)
  • JOB is responsible to, and supervised by Joint Operating Committee (JOC)
  • Pertamina and contractor are the member of JOC
  • JOC approves Work and Program Budget, and holds policies
  • Contractor carries Pertamina in financing exploration, ventures and advance development projects
  • Pertamina's sunk cost is recoverable and 50% uplift is applicable
5. Enhance Oil Recovery (EOR)
  • The scope of project is: pilot phase, injection water, fluid handling and treating facilities, drilling, work-over of injections and production wells
  • Injection system, flow lines until the connecting flanges to the manifold inlet of Pertamina gathering station
  • Incremental oil production: is determined for each production zone and agreed prior to contract signing
  • EOR cost and incremental oil produced are governed by the same terms as the JOA, except that 65% cost recovery ceiling is applied in the EOR
  • Cost incurred by Pertamina downstream is chargeable to EOR operation on pro-rata basis
  • The initial to yield contract is allowed to the pilot phase, thereafter full EOR project will commence

         The Indonesia government applied the New Taxation Law and Regulations for the PSC with a tariff of 48% in 1984. However, the new regulations were applied only to PSC's signed after 1988 because during the process of negotiation the contractor tended to apply the old taxation regulations. Since the government carried out the rule of Income Tax Law No. 10/1994, the new taxation for the PSC is 44%.
         Thus, the standard sharing of production changed into the following:
  • Oil : 65.9091% for Government, and 34.0909% for the Contractor
  • Gas: 20.4545% for Government, and 79.5455% for the Contractor

         The net share after deduction of tax:
  • Oil: Government/Contractor = 85/15
  • Gas: Government/Contractor = 65/35
  Flow of Revenue of PSC
  Exploration Incentive Packages
         Knowing that exploration for oil and gas is a risky venture, the government of Indonesia has offered four incentives to oil companies since 1988.
  • The first incentive package introduced in August 1988, included deregulation measures to be taken in the procedure.
  • The second incentive package issued in February 1989, addressed the equity split for mafriban fields, oil produced from Pre-Tertiary reservoir rocks, Tertiary EOR projects and investment credit incentives for deep sea contract areas.
  • The third incentive package introduced in August 1992, was intended to stimulate activities in gas exploration in both conventional and frontier areas with better equity split and the improvements of investment credit and DMO
  • The fourth incentive package appeared in late 1993. This package is based on geological thinking with geographical considerations. The archipelago is divided into the Western part as defined by the Sunda Platform and the Eastern part, that is the area east of 200 m isobath and other frontier areas in Western Indonesia. The DMO fee in the fourth package was increased from 15% to 25% of export price, while the First Tranche Petroleum (FTP) was decreased from 20%

         The following table is the incentive packages:
1st Incentive Package
(August 1988)
2nd Incentive Package
3rd Incentive Package
(August 1993)
4th Incentive Package (December 1993)
Investment Credit
Investment Credit amounting 17% of the Capital investment cost
For deep sea areas over 600 ft:

  • 110% (oil)
  • 55% (gas)

Development areas :
  • Pre-Tertiary reservoir rocks = 110% for oil and gas
  • Water depth 200-1500 m = 110% for oil and gas
  • Water depth below 1500 m = 125% for oil and gas

No longer applied
Condition that the government has to obtain as minimum of 49% of the gross revenue not valid anymore. The minimum guarantee is 25% of the gross revenue for the government
Domestic Market Obligation (DMO) Prices
10% of export price after this first five years
10% of export price after this first five years
15% export price after the first five year.
25% export price after the first five year.
First Trache Petroleum (FTP)
20% of production taken before deduction of cost recovery and will be split between government and contractor
No change
No change
15% of production taken before deduction of cost recovery and will be split between government and contractor
Split for Oil
Frontiers Production:
  • < 50 MBOD = 80%:20%
  • 50-150 MBOD = 85%:15%

  • > 150 MBOD = 90%:10%

    Conventional Area = 85%:15%

Marginal Fields and EOR in Tertiary Reservoir:

Conventional Area = 85%:15%

Frontier Area = 75%:25%

Pre-Tertiary and deep sea (over 600 ft) production: Incremental split as same as frontier production in the first package

  • Field developed in frontier areas = 80%:20%


  • Field developed in areas with water depth > 1500 ft = 75%:25%

65%:35% without Investment Credit
Split for Gas
Frontiers Production = 70%:30%

Conventional Areas = 70%:30%

No change
Frontiers Production:
  • Field developed in conventional areas = 65%:35%
  • Field developed in frontier areas = 60%:40%
  • Field developed in areas with water depth > 1500 ft = 55%:45%
60%:40% without Investment Credit.

This split is applied for Eastern Indonesian areas and path of Western Indonesian areas having similar geological and geophysical conditions.

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Last Update : 8 August 2002