Indonesian law stipulates by law that the extraction of the nation’s oil and gas resources must be done in a manner that produces the maximum benefit and income for the state, and contributes to the greatest prosperity of the people.
To this end, the Indonesian Government developed the Indonesian Production Sharing Contract (PSC), which was introduced in 1966 and has since been adopted by many other oil producing countries in various modified forms.
Under the Production Sharing Contract, foreign companies explore, develop and market resources under the general supervision of BPMIGAS. Exploration costs borne by the foreign companies are recovered when commercial production is established. The remaining oil and gas produced is then shared between BPMIGAS and its partner.
The key to the contract is the ‘production sharing’ concept. The investor does not share the profits of venture, but shares the production.
The PSC has evolved through a number of generations in line with the Indonesian Government's belief the importance of assuring a reasonable rate of return to investors in the face of an ever-changing business environment.