The Ministry of Energy and Mineral Resources (“MEMR”) recently issued Regulation No. 15 of 2018 regarding the Post-Operation Activities in the Upstream Oil and Gas Industry (“MEMR Regulation No. 15/2018”), imposing new obligations with respect to Abandonment and Site Restoration (ASR) or post-operation activities on contractors. The regulation came into force on 23 February 2018 and it repeals MEMR Regulation No. 01 of 2011 (“Repealed Regulation”). MEMR Regulation No. 15/2018 sends a strong signal of the Indonesian Government’s serious attention to post-operation obligations.
Unlike the Repealed Regulation, which covered only offshore installations, MEMR Regulation No. 15/2018 covers certain post-operation obligations for all upstream oil and gas activities. It requires contactors to prepare a post-operation activity plan and allocate reserve funds for the post-operation activity. The new regulation defines the term “post-operation” as activities of dismantling equipment, installations, and/or supporting facilities including permanent closure of wells (well plugging), site restoration and equipment disposal or removal management (“Post-Operation Activity”) prior to or at the end of a Production Sharing Contract (“PSC”) period. Here are some highlights of MEMR Regulation No. 15/2018:
Procedure for the Post-Operation Activity
- The contractor must draw up a Post-Operation Activity plan and ensure that it is reflected in its working & budget plan during the exploration stage and in its development plan during the exploitation stage. The Post-Operation Activity plan, which is subject to the approval of the SKK Migas, must include at least (i) identification of the equipment, installations and/or facilities to be dismantled, including the wells to be permanently closed, and (ii) calculation of the cost estimate for the Post-Operation Activity.
- Prior to the commencement of its Post-Operation Activity, a Contractor must obtain approval from the Directorate General of Oil and Gas (“DGOG”) by submitting a proposal to the DGOG (accompanied by the Post-Operation Activity plan approved by the SKK Migas) through the Chairman of the SKK Migas.
- When carrying out the Post Operation Activity, the Contractor is required to use the applicable Indonesian national standards (Standar Nasional Indonesia) and/or the international standards in accordance with the approved Post-Operation Activity plan.
- The Contractor must file a report with the MEMR within 30 days after the completion of the Post-Operation Activity.
- The Contractor must reserve a certain amount (“Reserve Fund”) for the Post Operation Activity by regular placement of funds in an account with an Indonesian state-owned bank under a joint account with SKK Migas starting from the year of its commercial production
- If the Post-Operation Activity plan is amended or adjusted to the extent that affects a change in the estimated cost for the Post-Operation Activity, the Contractor must adjust the amount of the Reserved Fund.
- For the PSC under the cost-recovery scheme, the Reserve Fund will be calculated as a refundable operation cost, while for the PSC under the gross-split scheme, the Reserve Fund will be borne by the contractor and calculated as a deductible item in the calculation of its income tax. After the completion of the Post-Operation Activity, for the PSC under the cost-recovery scheme, any excess of the Reserve Fund must be returned to the Indonesian Government, while for the PSC under the gross-split scheme, any excess of the Reserve Fund may be retained by the contractor.
- MEMR Regulation No. 15/2018 does not expressly provide for the amount and procedure for the Reserve Fund allocation; it only provides that the amount and procedure for the allocation will be further determined by the Head of the SKK Migas and reported to the DGOG.
- If, on the expiry of the PSC, the MEMR appoints a new contractor, the new contractor must continue to carry out the obligation to allocate for the Reserve Fund and to perform the Post-Operation Activity, and the new contractor may use the existing Reserve Fund allocated by the previous contractor (if any).
- Any reserve funds allocated for the Post-Operation Activity which remain unused up to the issuance of MEMR Regulation No. 15/2018 will be treated in accordance with the provisions of MEMR Regulation No. 15/2018.
If you have further inquiries about this newsletter, please reach out to us at firstname.lastname@example.org or any of our lawyers.
This publication is intended for informational purposes only and therefore does not constitute legal advice or legal opinion. Any reliance on the material is at the user’s own risk. All of W&P publications may not be reproduced without the express written consent of W&P.