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NEWS & EVENT
29 Jul 2013
Upstream Oil And Gas Business Activities

Definition   Under Indonesian oil and gas law, “upstream oil and gas business activities” is defined as business activities that consist of exploitation and exploration oil and gas activities. Exploration is series of activities to find and discover oil and gas reserves in certain working area. Exploitation is activities to produce oil and gas from certain working area which consist wells drilling and completion, development of transportation facilities, storage and processing for oil and gas separation and refining as well as other supporting activities.   Contractors   Upstream oil and gas business activities are carried out by contractors based on cooperation contract entered into with BPMIGAS (Indonesian Upstream Oil and Gas Executive Body).   A contractor may take form as, either:   1.  Business Entity (BE)   Business Entity is legal entity which carries out business permanently, continuously and established in accordance with the prevailing laws and regulations and, working and domiciled within the territory of the Republic of Indonesia. BE consists of state owned enterprises, regional government owned enterprises, cooperative and private business entities.   2.  Permanent Establishment (PE)   Permanent Establishment is business entity in the form of legal entity incorporated outside the territory of the Republic of Indonesia which carries out activities within the territory of the Republic of Indonesia and has to comply with Indonesian laws and Regulations.   Regulatory Main Restriction   1.  BE/PE that carries out Upstream Oil and Gas is prohibited from carrying out downstream oil and gas business activities and BE that carries out downstream oil and gas business activities is prohibited from carrying out Upstream Oil and Gas Business activities.   2.  One BE/PE may only be granted one working area (ring-fencing).   Cooperation Contract   Nowadays, the form of cooperation contracts that is available for new Working Area is Production Sharing Contract (“PSC”). Further, current PSC is classified into conventional PSC and coal bed methane PSC. Cooperation contract is valid for a period of 30 years and extendable up to 20 years. The 30 years period consists an exploration and exploitation period whereby exploration last for 6 years (with 3 years firm commitment) and extendable up to 4 years. The Minister of Energy and Mineral Resources has the authority to determine, stipulate Working Areas and the appointment of BE/PE which is granted to carry out Upstream Business Activities in certain Working Area. Working Area is awarded through the following mechanism: (i) regular tender; and (ii) direct offer which is preceded by joint study. Before the promulgation of Law No. 22/2001, Pertamina granted various cooperation contracts other than conventional PSCs, i.e. PSC-Joint Operating Contract (“PSC-JOA”), PSC-Joint operating Body (“PSC-JOB”), Technical Assistance Contract (“TAC”) and Enhanced Oil Recovery Contract (“EOR”). Based on Article 104 Government Regulation No. 35 of 2004, these contracts are still valid until the expiry of the respective contracts and with the condition that PSC-JOA and PSC-JOB are assigned to BPMIGAS from Pertamina while TAC and EOR are still under supervision of Pertamina (i.e. PT Pertamina EP). TAC and EOR are under the control of PT Pertamina EP based on cooperation contract entered into with BPMIGAS dated 17 September 2005 (“PSC Pertamina EP”). Currently, PT Pertamina EP, based on the PSC Pertamina EP, offers a form of cooperation contract being named as Kontrak Kerja Sama Operasi or Operation Cooperation Contract (“KSO”) to BE/PE for carrying out exploration and exploitation in certain working area within the PSC Pertamina EP.   See diagram below:

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