This article is supported by Mochtar Karuwin Komar www.mkklaw.net
The Minister of Energy and Mineral Resources (the “MEMR”) Regulation No. 23 of 2021 on Management of Oil and Gas Working Areas for Expiring Cooperation Contracts (“MEMR 23/2021”), which is intended to optimise the management of oil and gas working areas to maintain oil and gas production in working areas where there are still reserves, became effective on 19 July 2021. MEMR 23/2021 replaces and revokes MEMR Regulation No. 23 of 2018 as lastly amended by MEMR Regulation No. 3 of 2019 (“MEMR 23/2018”).
Both MEMR 23/2018 and MEMR 23/2021 provide four (4) alternatives for an oil and gas working area where the existing cooperation contract is due to expire :-
(a) the existing cooperation contract can be extended with the existing contractors;
(b) upon expiry of the existing cooperation contract, the working area can be managed by PT Pertamina (Persero);
(c) upon expiry of the existing cooperation contract, the working area can be managed jointly by PT Pertamina (Persero) and the existing contractors; or
(d) the working area can be tendered to new contractors/investors.
There are, however, some important differences between MEMR 23/2018 and MEMR 23/2021 :
1. The main difference relates to the transfer of participating interests under cooperation contracts:
- MEMR 23/2018 provided that, during the initial three (3) years after the effective date of the extended cooperation contract or the new cooperation contract (as the case may be), contractors could not assign their majority participating interest to other parties other than their affiliates.
- It is, however, provided in MEMR 23/2021 that contractors may transfer their majority participating interest in cooperation contracts to other parties in the event that there is a significant economic change in the operation of the working area or new reserves are discovered and such new reserves require capital, technology or human resources which cannot be provided by the original contractors. The transfer of a majority participating interest in a cooperation contract will be subject to the approval of the MEMR based on a recommendation from the Special Task Force for Upstream Oil and Gas Business Activities (“SKK Migas”).
2. Similar provisions to the provisions outlined in paragraph 1 above apply where PT Pertamina (Persero) is the contractor/operator under a working area which has been returned to the Government upon expiry of the initial cooperation contract. Whereas MEMR 23/2018 provided that PT Pertamina (Persero) must maintain a minimum participating interest of fifty one per cent (51%) until the expiration of its cooperation contract, MEMR 23/2021 provides that PT Pertamina (Persero) (and its affiliates) may transfer more than fifty one per cent (51%) of its participating interest :
- In the event that there is a significant economic change in the operation of the working area or new reserves are discovered and such new reserves require capital, technology or human resources which cannot be provided by PT Pertamina (Persero) (or its affiliate); or
- In order to implement a strategic partnership for the operation of one or more working areas overseas through a partnership arrangement between Indonesia and another country or through a partnership agreement between PT Pertamina (Persero) (or its affiliate) and the national oil company of another country.
The transfer of the participating interest of PT Pertamina (Persero) (or its affiliate) will, again, be subject to the approval of the MEMR based on a recommendation from SKK Migas.
3. Both MEMR 23/2018 and MEMR 23/2021 refer to the “Firm Work Commitment” of contractors under cooperation contracts i.e. the commitment by contractors to invest to increase reserves and/or oil and gas production within the first five (5) years through exploration and exploitation activities based on the cooperation contract. However, MEMR 23/2021 permits contractors to revise their “Firm Work Commitment” to become a commitment for non-conventional oil and gas (which includes shale oil, shale gas, tight sand gas, coal methane gas and methane hydrate). This change can be viewed as the Government providing flexibility to contractors with regard to fulfilling their obligations under cooperation contracts while also evidencing the Government’s intention to promote the non-conventional oil and gas sector.
4. MEMR 23/2021 also provides flexibility to contractors by providing that PT Pertamina (Persero) and other contractors can apply to the MEMR to change the form of cooperation contract from a contract based on a cost recovery scheme to a contract based on a gross split or vice versa (prior to 2017 all cooperation contracts were based on a cost recovery scheme pursuant to which contractors would be reimbursed for their operating costs through oil and gas production – in 2017, the Government introduced gross split contracts pursuant to which all costs would be borne by the contractors but the contractors would be entitled to receive a higher production split). The application to change the form of contract can only be submitted to the MEMR after PT Pertamina (Persero) or the other contractor (as the case may be) has fulfilled its five (5) year Firm Work Commitment as described in paragraph 3 above.