Coalbed Methane Development in Indonesia: Design and Economic Analysis of Upstream Petroleum Fiscal Policy

Elijah Acquah-Andoh, Herdi PUTRA, Augustine Ifelebuegu, Andrews Owusu

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)
202 Downloads (Pure)


Due to increasing demand for natural gas in Indonesia, the Government now promotes exploration for coalbed methane (CBM). Currently, Indonesia has 453 trillion cubic feet (TCF) of CBM reserves. However, CBM development in the country is still in the exploration phase, with significant under-investment. To attract investors, a tailored Production Sharing Contracts (PSC) regime is required. Based on a combination of Factor Analysis (FA), Discounted Cash Flows (DCF) and Parameter Sensitivity Analysis, the research explores an optimal scenario of a company’s share of revenue that optimised CBM development contracts. We find that a combination of 5 years straight line depreciation (SLD), 5% First Tranche Petroleum (FTP), 78% Contractor Share (CS) and 35% income tax best spreads the risk of CBM development and exploitation between the government and the contractor. This combination is a more suitable PSC regime for developing CBM in an early stage of the industry. Therefore, the Government must cede some taxes during exploration to incentivise CBM development. Three PSCs regimes are thus required to fully develop and exploit CBM, including exploration, transitional and exploitation phase PSCs which better match contractor risks and returns and ensure reasonable certainty of contractor cost recovery.
Original languageEnglish
Pages (from-to)155-167
Number of pages13
JournalEnergy Policy
Early online date11 May 2019
Publication statusPublished - Aug 2019

Bibliographical note

NOTICE: this is the author’s version of a work that was accepted for publication in Energy Policy. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Energy Policy, 131, (2019) DOI: 10.1016/j.enpol.2019.04.035

© 2019, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International


  • Coalbed methane
  • Development contracts
  • Investments
  • Natural gas
  • Production sharing contracts
  • Unconventional

ASJC Scopus subject areas

  • Energy(all)
  • Management, Monitoring, Policy and Law


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