Oil & Gas Regulation 2021 A practical cross-border insight into oil and gas regulation work 16th Edition Featuring contributions from: Advokatfirmaet Simonsen Vogt Blake, Cassels & Graydon LLP Pérez Alati, Grondona, Benites & Wiig AS Dentons Arntsen (PAGBAM) Agmon & Co. Rosenberg Hacohen Faveret Lampert Advogados Rodner, Martínez & Asociados & Co. HRA Advogados Rustam Kurmaev & Partners ALC Advogados Jeantet AARPI SB Law, PLLC Ashurst LLP Marohnić, Tomek & Gjoić d.o.o. SSEK Legal Consultants Bernitsas Law Nunziante Magrone Unicase Law Firm Binder Grösswang Osterwald Rathbone & Partners Table of Contents Expert Chapter Synergies Between Offshore Oil and Gas and Decarbonisation Technologies 1 Anthony Johnson, Naomi Nguyen & Justyna Bremen, Ashurst LLP Q&A Chapters Angola Italy 7 ALC Advogados: Irina Neves Ferreira & João 133 Nunziante Magrone: Fiorella F. Alvino & Giovanna Francisco Cunha Branca Argentina Kazakhstan 16 Pérez Alati, Grondona, Benites & Arntsen (PAGBAM): 145 Unicase Law Firm: Zhanar Abdullayeva & Aybek Francisco J. Romano Kambaliyev Austria Mozambique 33 Binder Grösswang: Michael Kutschera & Alexander 156 HRA Advogados: Paula Duarte Rocha & Tiago Arouca Scharkosi Mendes Brazil Norway 48 Faveret Lampert Advogados: José Roberto Faveret 168 Advokatfirmaet Simonsen Vogt Wiig AS: Bjørn-Erik Cavalcanti & Lucas Carvalho de Souza Leerberg & Frode A. Berntsen Canada Russia 61 Blake, Cassels & Graydon LLP: Christine Milliken & 181 Rustam Kurmaev & Partners: Rustam Kurmaev & Kevin Kerr Vasily Malinin Croatia United Arab Emirates 75 Marohnić, Tomek & Gjoić d.o.o.: Josip Marohnić & 198 Dentons: Mhairi Main Garcia & Stephanie Hawes Tena Tomek United Kingdom France 211 Ashurst LLP: Michael Burns & Julia Derrick 85 Jeantet AARPI: Thierry Lauriol & Marine Lecomte USA Greece 231 SB Law, PLLC: Regina Speed-Bost 101 Bernitsas Law: Yannis Seiradakis & Eleni Stazilova Venezuela Indonesia 242 Rodner, Martínez & Asociados: Jaime Martínez 112 SSEK Legal Consultants: Fitriana Mahiddin, Syahdan Estévez & Rubén Darío Valdivieso Z. Aziz & Aninda Nurul Savitri Israel 124 Agmon & Co. Rosenberg Hacohen & Co.: Dan Hacohen, Eddie Ashkenazi & Rebecca Baskin Zafrir Digital Edition Chapters The Strategic Dilemma Faced by Oil and Gas in the Energy Transition 253 Rachel Lennox-Warburton & Edward Osterwald, Osterwald Rathbone & Partners 112 Chapter 10 Indonesia Indonesia Fitriana Mahiddin Syahdan Z. Aziz SSEK Legal Consultants Aninda Nurul Savitri 1 Overview of Natural Gas Sector Indonesia Ltd; and SP Bambu Besar (non-associated gas) by PT Pertamina EP. The five ongoing projects are: the MSTB field (Phase-1-BPF) by EMP Malacca Strait; the Betung Compressor 1.1 A brief outline of your jurisdiction’s natural gas by PT Pertamina EP; the Peciko 8A field in the Mahakam PSC sector, including a general description of: natural gas by Pertamina Hulu Hakam; the Sembakung Power Plant by PT reserves; natural gas production including the extent Pertamina EP; and the PHE-12 Reactivation by Pertamina Hulu to which production is associated or non-associated natural gas; import and export of natural gas, including Energi West Madura Offshore. liquefied natural gas (LNG) liquefaction and export LNG facilities in Indonesia include Bontang (East Kalimantan), facilities, and/or receiving and re-gasification facilities Tangguh (West Papua), and Donggi Senoro (Sulawesi). In a (“LNG facilities”); natural gas pipeline transportation and 15-year road map published by the Directorate General of Oil and distribution/transmission network; natural gas storage; Gas (“DGOG”) in April 2016, the Government forecasts a need and commodity sales and trading. for USD 24.8 billion in investment to enhance gas infrastructure. A national gas transmission and distribution network has been By the end of 2019, Indonesia’s proven natural gas reserves developed by the Ministry of Energy and Mineral Resources recorded in the BP Statistical Review of World Energ y 2020 (“BP (“MEMR”). Gas pipelines and storage facilities may be owned 2020 Report”) amounted to 50.5 trillion cubic feet (“Tcf”). Gas and operated by private companies, subject to the regulations production reached 67.5 million tonnes per annum, representing of the MEMR and the Downstream Oil and Gas Regulatory 64% of the total oil and gas production in Indonesia. Of the Agency (“BPH Migas”). foregoing production, 16.5 billion m3 was exported as LNG and 3 7.4 billion m was exported through pipelines. 1.2 To what extent are your jurisdiction’s energy According to the PwC Oil and Gas Guide 2019 (“2019 PwC requirements met using natural gas (including LNG)? Guide”), Indonesia has the sixth-largest Coal Bed Methane reserves in the world at 453 Tcf. Shale gas reserves are estimated In 2019, natural gas satisfied roughly 20.09% of Indonesia’s total at 574 Tcf. energy requirements. Indonesia’s main areas for gas production are South Sumatra, East Kalimantan, Natuna, Sulawesi, and West Papua. In 2017, a number of upstream projects were declared strategic 1.3 To what extent are your jurisdiction’s natural projects by the Government of Indonesia (“Government”) in an gas requirements met through domestic natural gas effort to increase oil and gas production. These include Tangguh production? Train-3, the Chevron Indonesia Deepwater Development Project, the Jangkrik Field Development Project, and the development of Currently, Indonesia’s natural gas requirements are fully met by the Jambaran-Tiung Biru block and Genting’s Kasuri block. domestic production, particularly by the allocation of the domestic According to the Special Task Force for Upstream Oil and Gas market obligation (“DMO”) from every PSC Contractor. PSC Business Activities (“SKK Migas”) Bulletin in October 2020, Contractors are required by law and contract to reserve 25% of SKK Migas targeted 12 projects to commence production in their oil and gas production for the domestic market. According 2020. Among these, nine projects have been realised. These are: to the BP 2020 Report, the ratio of Indonesia’s natural gas the Buntal-5 field by Medco E&P Natuna Ltd; the Randugunting production to consumption in 2019 was 154%. field by PT Pertamina Hulu Energi; Grati Pressure Low by Ophir Indonesia Ltd; Bukit Tua Phase 3 by Petronas Carigali Ketapang 1.4 To what extent is your jurisdiction’s natural gas II Ltd; Sembakung Power Plant by PT Pertamina EP; the Cantik production exported (pipeline or LNG)? field in the Belida Production Sharing Contract (“PSC”) by Sele Raya Belida; the SKG-19 Compressor by PT Pertamina Nearly half of Indonesia’s gas production is exported. According EP; the Meliwis field in the Madura Offshore PSC by Ophir to the BP 2020 Report, LNG exports in 2019 reached 16.5 Oil & Gas Regulation 2021 © Published and reproduced with kind permission by Global Legal Group Ltd, London SSEK Legal Consultants 113 3 billion m to eight countries. The biggest customers include the regulation of oil and natural gas development; and China, Japan, and South Korea. During that same period, 7.4 current major initiatives or policies of the Government (if billion m3 was exported by pipeline to Singapore and Malaysia. any) in relation to oil and natural gas development. 2 Overview of Oil Sector Indonesia’s oil and gas sector is governed by Law No. 22 of 2001 regarding Oil and Natural Gas (November 22, 2001), as amended 2.1 Please provide a brief outline of your jurisdiction’s by Law No. 11 of 2020 regarding Job Creation (November 2, oil sector. 2020) (“Job Creation Law”) (collectively, the “Oil and Gas Law”). The State retains mineral rights throughout Indonesian According to the BP 2020 Report, there were 2.5 billion barrels territory and the Government holds the mining authority. of proven oil reserves in Indonesia as of the end of 2019, putting The oil and gas sector comprises upstream and downstream Indonesia at number 22 among the world’s oil producers. Oil activities, which are regulated and organised separately. Upstream production reaches 781,000 barrels of oil per day. This is a 3.4% activities include exploration and exploitation and are regu- decrease from the production rate in 2018. In 2018, Indonesia’s lated under Government Regulation No. 35 of 2004 regarding Upstream Oil and Natural Gas Business Activities, as amended oil and gas revenue contributed roughly 7% of State revenue. most recently by Government Regulation No. 55 of 2009 (“GR The SKK Migas Annual Report in 2019 recorded that after 35”). The upstream sector is managed and supervised by SKK terminating 22 PSCs in 2019, Indonesia had a total of 199 PSCs, Migas. comprising 77 PSCs in the exploration stage, 92 PSCs in the Due to the unique territorial composition of the archipelagic exploitation stage, as well as 30 Non-Conventional Hydrocarbon State of Indonesia, upstream oil activities may be undertaken in PSCs. onshore and offshore areas. Work areas for onshore and offshore Most oil upstream activities are focused in western Indonesia, operations are determined by the MEMR based on consulta- with the main areas for oil production being Sumatra, the Java tions with and recommendations from the respective regional Sea, East Kalimantan, and Natuna. The Government has been governments. encouraging exploration activities in eastern parts of Indonesia, Downstream activities encompass processing, transporta- where, according to the 2019 PwC Guide, 39 tertiary and tion, storage, and trading, and are regulated under Government pre-tertiary basins show rich promise in hydrocarbons. Major Regulation No. 36 of 2004 regarding Downstream