Legal UpdatesPublicationsLicensing Simplification for Oil and Gas Upstream Industry

Ministry of Energy and Mineral Resources (“MoEMR”) has simplified the licensing in upstream industry by cutting off several ineffective regulations. The convoluted regulatory system was in fact the major issue in governing licenses in energy sector, predominantly in oil and gas industry. MoEMR has successfully merged 104 licenses into 6 licenses under MoEMR of 29/2017, 2 licenses for upstream business and 4 licenses for downstream business. The 2 licenses in upstream industry comprise survey license and oil and gas data utilization license. These licenses are issued by Directorate General of Oil and Gas as the Grantor after the applicant submits an application for the license along with Administrative and Technical requirements attached.

There are several requirements to obtain a survey license, as follows:

Administrative

Technical

Copy of Deed of Establishment

Area boundaries and general survey trajectories

Company profile

Time plan and work plan

Letter of Company Registration List

Survey of equipment and parameters

Tax ID number

  Parameters and stages of data processing

A statement letter if survey trajectory will cross the relevant work area

The plan to omit the acquisition of general survey data

Guarantee of sufficient funding, both for funding by other parties and / or owning the fund as evidenced by:

  1. statement letter guaranteeing the adequacy of owned funding, or
  2. a financial capacity statement from the main bank domiciled in Indonesia

Data dissemination plan

As for the data utilization license, there are 3 purposes of oil and gas data utilization license that may be used domestically or abroad, namely; 1) for the purpose of data evaluating and processing, 2) for scientific purposes, and 3) for the purpose of data disclosure.

For domestic data utilization, the contractor is required to submit a request letter for data utilization, list of data to be utilized, and statement of ability to sign a confidentiality agreement. As for abroad data utilization, the requirements at least consist of the letter of request for data transmission, Work Plan & Budget approval from Special Task Force for Upstream Oil and Gas Business Activities (Satuan Kerja Khusus Pelaksana Kegiatan Usaha Hulu Minyak dan Gas Bumi) (“SKK Migas”), and other related letters of statements.

In respect with exploration phase, there are 7 regulations that were revoked and merged into 1 regulation by MoEMR. This regulation, MoEMR Regulation 38/2017, regulates the safety compliance in oil and gas installments and equipment. MoEMR approval is used as an instrument to control the compliance, which consists of operation worthiness approval, design approval, and utilization approval. There are also several non-licensing regulations that still exist, as follows:

  1. Approval on Development Plan I (Government Regulation 35/2004). It is required that the initial development plan of a work area must be approved by the MoEM of Energy and Mineral Resources (“MoEM”) based on recommendations from SKK Migas and consultation with Governor;
  2. Approval on Old Well Production (MoEMR Regulation 1/2008). When a Contractor has not developed the old well, the Contractor then may transfer the obligation to develop the old well to Regionally-Owned Business Entity (BUMD) with the MoEM approval;
  3. Approval on Joint Study (MoEMR Regulation 35/2008). This is for activities carried out jointly between Business Entities or Permanent Business Forms and the Directorate General in the context of Direct Offer of Work Area by conducting inventory, processing and evaluation of data to determine the oil and gas potential;
  4. Approval on Farm In Farm Out Agreement (Government Regulation 35/2004). It regulates that Contractors may transfer and/or handover partly or in a whole of their obligation in a form of participating interest towards other parties after receiving approval from the MoEM based on recommendation from SKK Migas;
  5. Approval on Work Area Relinquishment (Government Regulation 35/2004), which regulates contractor’s obligation to fulfill its commitments before relinquishing the Work Area;
  6. Recommendations on Crude, LNG and Gas Exports (Ministry of Trade Regulation 3/2015 and MoEMR Regulation 40/2017); and
  7. Recommendations on Using Oil and Gas Work Area for Other Activities (Government Regulation 35/2004).

From environmental aspect, the Contractor is obliged to comply with Environmental Law (“Law 32/2009”) and Forestry Law (“Law 41/1995”). The Contractor must comply with the standard of environmental quality followed by an environmental permit that must be acquired before operation. If the Work Area is in the forestry area, the Contractor must own a borrow-to-use forestry permit (“IPPKH”). In terms of investment, according to PR 44/2016 regarding Negative Investment List, the offshore drilling activities may be owned by foreign shareholders with a maximum of 75% of the total shares.

Irrelevant and layered licensing would give a detrimental impact on investment climate. The purpose of this simplification is to improve the effectiveness and the efficiency of business and to increase the state and regional revenues. This ‘ease of business’ effort is also reflected in the transfer of the licensing authority from MoEMR to Investment Coordinating Board (BKPM) based on MoEMR Regulation 23/2015, and now the licensing process can be arranged online.

 


ADCO Law earns the trust to represent clients from multinational companies to emerging entities across a wide range of industries to achieve their business objectives in Indonesia.

By combining commercial sensibilities and legal expertise, ADCO as a Law Firm Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing and securing investments as well as establishing new foreign companies in Indonesia. Should you have more queries regarding this matter, please do not hesitate to contact us.

Dendi Adisuryo
dendi.adisuryo@adcolaw.com

Liza Mashita
liza@adcolaw.com

@2020 ADCO Law. All rights reserved.
This publication has been prepared by Aditya Yudhistira for general informational purposes only to provide clients with information on recent legal developments and is not intended as legal advice or opinion.

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