Abstract

Since the early 1960's, Indonesia has developed various business arrangements and incentives for upstream activities. The variety of the arrangements comprising Contract of Work (COW), Technical Assistance Contract (TAC), Production Sharing Contract (PSC) with various models, Loan Agreement (LA) and EOR Contract (EORC) reflects the need for Indonesia to entertain the various scales of investment and to handle a broad spectrum of acreage maturities. Incentives, on the other hand, play different roles which in principle are aimed at stimulating more risky and frontier activities which have slowed in the last decade due to reduced levels of funding.

While the mission of the upstream activities in the National context is the economic exploitation of oil and natural gas for the maximum benefit of the people, the implementation goals in practice have changed from time to time.

Prior to 1967, the goal was more to encourage production from old existing fields at whatever revenues were obtainable. During the period 1967-1987, the goal was to increase National production to a maximum level, thereby, enabling the generated revenue to support economic growth and to allow industry to act as a multiplier for other sectors. Post-1987, the goal has been to minimize the deficit balance of reserves discovery relative to production.

The ever changing goals and similarity of internal factors such as geological prospectivity and increasing domestic use, and external factors such as fund availability and competition require the use of strategic management based concepts. In the future, the application of concepts will be more complex as additional factors become involved such as the growth of National private companies, the need to renew old proprietary operations and other effects of globalization.