Tuesday, October 14, 2008

Experience Negotiating PSC - TAC with GOI

I have experienced negotiating the Production Sharing Contract ( PSC) with the team from the Government of Indonesia (“GOI”), which previously was represented by Pertamina, but now is being represented by BP Migas, which I would like to share my experience as follows.

As we are aware in the Oil and Gas practices in Indonesia, Pertamina is now being positioned not as the regulator anymore, but shall have the same positions such as the other oil and gas Investors. However, the difference with other oil/gas contractors, is that Pertamina, is established and owned 100% by the State as stipulated by a certain Indonesian rulings.

I was representing my Client who was, the Oil and Gas Investor, who was negotiating the terms and conditions of the PSC or EOR (Enhance Oil Recovery) with the GOI.

Our team which is the Oil /Gas Investor, is usually represented by several persons from technical people, commercial, economics, tax, HRD and legal.

Usually there is a general format standard format of PSC, being introduced by the GOI, however, in the implementation of practices, before a PSC is agreed by the GOI and the Oil/Gas Contractor, negotiation shall take place between GOI and the Oil/Gas Contractor upon certain significant terms and conditions of such PSC.

From my practical experience, the issues which are discussed with the GOI among others are issues concerning the figures of the information Bonuses which are related to the giving of data/information by the GOI and received by the Oil/Gas contractors. There is then the Signature Bonuses, and the production Bonuses. These production bonuses are usually related to the level of production during the production stages of such oil and gas activities.

Furthermore, the commitment expenditure were also being discussed as to the amount of the aggregate total commitment expenditure, and when shall such amount obligated to be spent during the first 6 Years period.

As we all are aware, under the PSC arrangement, the GOI is always asking the Oil / Gas Investors to make their commitment assurance, that certain amount of commitment expenditures must be spent by the Oil / Gas Contractors during the 1st Six Years commencing from the effective date of the PSC for conducting the oil and gas operations.

This commitment expenditure is very significant to the GOI, since the GOI is relying on the Commitment Expenditure made by the OIL/Gas Contractors, which can demonstrate their seriousness in conducting the Oil and Gas Operations, starting from the General Survey, Explorations Period, Appraisal, Exploitation period, Production.

If during the running Year the Oil/Gas Contractor is spending less than the amount of money required to be so expended, than an amount equal to such under expenditure, with BP Migas consent may be carried forward and added to the amount to be expended in the following Contractor Year, without prejudice to the OIL/Gas Contractor’s Rights under the PSC.

There are certain period established and agreed by the GOI and the OIL/Gas Contractors for each of such stage of oil and gas operations.

It should also be noted, there is also a certain period of time, during the term of the PSC, that Contractor is obligated to surrender part of the Contract Area which is considered as area which shall not be developed by the Oil /Gas Contractor.

This scheme of surrendering such portion of Contract Area, is to ensure that such surrendered Area, can or may then be offered to another Oil /Gas Contractor who are interested to explore and develop such Area.

Well, those above are among others a glance picture of what shall be going on during the negotiation process of the PSC, TAC or EOR between the Oil/Gas Contactors and the GOI now being represented by BP Migas.

Date : October 14, 2008 Agung Supomo Suleiman

Senior Partner

Law Firm Suleiman Agung & Co

http://www.sacolaw.blogspot.com

Email : agungsacolaw@telkom.net

Mobile phone : 0816830647

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