The Skill and Art of Drafting Oil/Gas and General Mining Contracts

Well as a Lawyer it is really fun for me to prepare, draft or review Contracts.

Maybe, it is like a geologies, when they see rocks or stones whether it still at the ground or at the mountain, or even after it had been polished, placed in a building at the walls or as titles, such geologies can tell many stories about such stone or rocks, the history of it where does it originated and came from and many other interesting stories related to such rocks.

It is also like painters, when they painted something either it is nature, abstract, or whatever imaginations they have captured and visualized it with their paintbrush, such painter seems to be deeply involved and is having fun in drawing such painting.

In my personal experience, this kind of fun, enjoyment and excitement can also happen to us as lawyers when we are drafting, preparing and reviewing legal documents or legal transactions.

The surroundings of their day-to-day place or field of work will shape their perception on what they are drafting. So if we focus drafting contracts related to oil and gas and general mining operations activities, the skill of preparing such legal documents to support the management, the end users, the operations person in the field, is to open widely your imagination but focusing and concentrating on the core of the business operations in the oil and gas, or general mining operations.

For instance, as the business lawyer, we have to be fully aware of the circumstances surrounding the operations person, where they are shaped to be persons who are always rushing to get the operation start without delay, if possible to be done yesterday. In the Oil /Gas as well as in the General Mining operations, the stages of the operations are usually processed through the same pattern of stages starting from general survey, exploration, appraising whether there are deposits which are commercially ready to be developed, or un commercial, or in the oil and gas operations dry hole.

If commercial production is being agreed upon, then development of production, will commence and ready to be stored either in the station gathering if it is oil/gas, or production stock for mining products and after that ready to be sold to the market and make profit.

Well, it sounds very interesting isn’t.

Yes, but please make sure that the risk are high, where there will be sinking fund situation borne by the oil/gas or general mining investors, if they have spent lost of monies for starting up the operation from general survey and exploration stages, but after being appraised in the appraisal stage it is determined, that such location is as non commercial for production.

Accordingly, having said the above, then you or us as a business Oil and Gas Lawyer and General Mining Lawyers, must have full consciousness and awareness from the operations/technical side, the business/ economics / commercial side, as well as the legal aspects, and safety, environmental, local culture perspective must be in such a manner, to maintain balance upon all such significant aspects.

Agung Supomo Suleiman

Senior Partner

Of the Law Firm Suleiman Agung & Co

Blog: http://www.sacolaw.blogspot.com

Email : agungsacolaw@telkom.net

Mobile Phone : 0816830647

Privatization Program of Infrastructure of a Mining Company

It was really an interesting experience when I was involved as one of the legal team in a General Mining Company who wishes to sell out and privatize all of its infrastructure assets that it had build among others its Airport and its airplanes, its Special Harbor including its vessels, its Telecommunications Infrastructure. Why could this occur and why must it occur ?

Well this is the very interesting part of the matter, which really taught and inspired us as to how the real mining entrepreneurs are doing their mining business operations. As we are all aware, the huge deposits of cooper are frequently located in a very remote area in this place of the earth, where no access road nor any other infrastructure are available.

This also occurs on the Copper Deposit which the Mining Company had discovered in the far east part of Indonesia, namely Irian Jaya or Papua , where such location lies on the top of the high mountains of such beautiful island of Papua, which height is approximately 4000 meters above the sea level.

One of the most interesting things of the mother nature, which captured my attention was that in such high places, you, can find many sea fossils, shell fossils, which was processed by the journey of the time and nature to become stones in the shape of such shells fossils.

According to the geologist, these high rough but beautiful mountains, was formerly hundreds or thousand years ago, to be the bottom of the sea or oceans where many sea shells are living.

Based on the process of the movements and activities of the earth, in which according to the geologist, it was the meeting point of the Australian plate structures and Indonesian plate structures, which then emerged up, to the top, and became the High Mountains, as can be seen and shown on the steep lines structures of the rocky stones mountains.

Amazing isn’t it.

This high mountain among others are called Grassberg, which contains huge amount of copper deposits, which are very significant and needed by human mankind, around the globe, especially for electrical devices such as the connection/head of dynamos in a car and or other electrical devices and equipments, telecommunications devices etc.

Due to the remoteness of the places, during the first exploration period, there were no any infrastructure facilities, nor any access roads, starting from the seaport, unto the access roads straight ahead to the very high top places in such mountains where lies such copper deposits.

The weather above the mountains are very unpredictable, which mostly is fogging and covered by fog. In such weather you have to wear your jackets, because it is really cold up there.

During the early beginning of the exploration phase there were also no any airport infrastructure founded in the low land.

We usually call the high mountains where the copper deposit is located, as the High Land and the special ship harbor and the airport as the Low Land.

Accordingly, the Mining Company who operates such Copper Mining Operations, are really entrepreneurs and pioneers who has high visions and guts to start up such operations in such remote area.

In the progress of the production, after several years of production, when such Mining Company intends to increase their production capacity, there comes a stage, where such Copper Mining Company, desires to maintain its cash flows for supporting the continuity of their core business on the Copper Mining.

In reaching such stage the management then after approved by the shareholders, decided to sell out all its already build supports infrastructures, such as the airports and its air fleet, the special harbor and its ships/ vessels, the telecomunication infrastructure facilites, to the potential respective investors whose main business is respectively running and operating such infrastructures.

Thus the Airport Facilities and its airplanes are sold to an Airplane /Airline Investors, the Harbor and the ships /vessels are sold to the professional Shipping and Special Harbor Investors, and the Telecommunications infrastructures are sold to the Telecommunication facilities Companies.

This also includes the Super Market, which was also sold to the Super Market Investor.

Such transactions, involved financing and Bankers, to finance the respective investors buyers to purchase such Infrastructures.

The Copper Mining Company shall then received the Purchase Price of such infrastructures from the Buyers of such Infrastructures to be used to expand, develop in increasing its Production Capacity of the Copper and Gold.

Well we as the Business Companiy Lawyer, are happy and eager to fully support the management goals, by having the responsiblity and legal task to to prepare and review all the necessary legal documentations starting from the Sale and Purchase of such Infrastructures, Legal Due Diligence on all the agreements, licenses, permits, agreements with 3rd parties involved or related to such infrastructures, which includes for instances the proper legal documentation and licenses attached to the Special Harbor and the Ships/Vessels, which we have to go and check with the Directorate of Sea Communication.

These also applies to the Airports and the airplanes where all the necessary documents and licenses and permits have to obtain and checked with the relevant Directorate of Air Communication.

We as Lawyers must also provide the Legal Opinions, reviewing the Financing / Bankers /Loan Transactions and its collaterals for financing purposes of such infrastructures, which are required by the Bankers.

It was really interesting for the Business Lawyers to be involved in such exiting privatization transactions to fully support the management goals and achievement in conducting and maintaining the continuity of the Mining Operations for production.

Well, that is what I have to share with you relating to the privatization of the Infrastructures which once occur and experienced by one of the Big General Mining Companies, who had a Contract of Work with the Government of Indonesia.

Agung Supomo Suleiman

Partner

Law Firm Suleiman Agung & Co

Blog: http://www.sacolaw.blogspot.com

Email : agungsacolaw@telkom.net

Mobile Phone : 0816830647

Experience Conducting Legal Due Dilgence

There were several instances where we were requested by our Client to conduct legal due diligence of our Client who was an Oil Company and Gas Company, who wishes to farm out an undivided portion of its Participant Interest under a certain Production Sharing Contract (PSC) or Technical Assistance Agreement to a potential prospective Oil / Gas Investor.

The most interesting part, of our task before we could make the report of our Legal Due Diligence, is that we have to conduct certain legal due diligence on the legal corporate documents, any and all of the necessary required licenses, permits as well as the necessary oil and gas contracts our Client has signed by with the government of Indonesia (GOI) being represented by Pertamina , and know BP MIGAS.

As a standard practices we also have to check any of the financing or credit agreements/loan agreements including its collaterals it may have entered into so that the potential Investor will be fully aware of the condition of our Client who wishes to request to participate in the development of the Oil and Gas Operations in Indonesia.

We as an Independent Lawyer is also requested to check any third party contracts which our Client is engaged in an agreement or contracts during the period when such Legal Due Dilgence is conducted.

We also will check whether there any legal proceedings either arbitration, litigation or any other legal proceedings that has a material impact on such transactions.

Well those are among others the tasks which we were requested to conduct, when our Client as an oil and gas investor, wishes to farm our portions or all of its undivided Participant Interests under a certain PSC or TAC to a certain potential prospective oil/gas investor, where we also are required frequently requested to provide them with a Legal Opinion.

Agung Supomo Suleiman Senior Partner

Law Firm Suleiman Agung & Co Blog:

http://www.sacolaw.blogspot.com

email : agungsacolaw@telkom.net

Mobile Phone : 0816830647

Legal Liability Risk Exposures

In the Oil and Gas and General Mining Contracts, we as lawyers must really be fully aware upon the Legal Liability Exposures surrounding the operations.

These legal exposures have to be taken into considerations when we give legal advices and legal opinions, including when we are preparing, reviewing or drafting the necessary legal documentations that might be exposed during the starting of establishing the vehicles being used by the oil / gas, general mining investors to conduct its business activities.

In practice, this starts from preparing the corporate documents, the licenses, permits which are required to be fulfilled by the respective Indonesian Authorities as well as the prevailing Rules and regulations.

Relating to Oil/Gas and General Mining activities, where pollutions on the environments are potentially to be exposed, we shall then have to observe all the applicable environmental laws, rules and regulations that has to be fulfilled.

Why are these significant?

These are really significant, because the principle under the environmental laws are “strict liability concept”, in the sense that if there are other activities which maybe impact by the operations activities from the oil/gas operations, general mining operations, then the "burden of proof" is not exposed on the parties claiming of suffering polution against the mining companies, but is upon the mining companies, who must proof that their activities are not causing such polution.

I have experienced, that even fish and shrimp pond owner, may file claims for loss of profits, income and damages, with the reasoning that their fish and shrimp pond business, was polluted by elements arising from the oil/gas or general mining activities.

What was also interesting, is that person or individuals might also claim for compensation due to the noise coming from the operations of engines, which caused illness to their hearings.

The above are among others examples of legal exposures which may arise in the oil/gas and general mining business operations, which have to be anticipated by the oil/gas as well as general mining companies conducting their operations in Indonesia. agung supomo suleiman Email : agungsacolaw@telkom.net

HP 0816830647 http://www.agungsacolaw.blogspot.com

Comparison between Oil & Gas Contracts and General Mining Contracts in Indonesia

Comparison between Oil & Gas Contracts and General Mining Contracts in Indonesia From my experience working for 5 Years as In house Legal Counsel in the Oil and Gas Sectors(Virginia Company Indonesia / Huffco Indonesia)(Oil and Gas), 5 Years as in house Legal Counsel in the General Mining Sectors (Copper and Gold) (PT Freeport Indonesia Company), 5 Years in a reputable Law Firm in Indonesia, 2 Years as Partner of a Leading Reputable Law Firm in Indonesia, and 10 Years as Partner in the Law Firm of Suleiman Agung & Co in Indonesia, I can conclude that even though both resources are from the same Indonesian below grounds deposits, the treatment in entering into agreements for general survey, exploration, exploitation, producing up to marketing between the products of Oil and Gas and the General Mining are different.

In the Oil and Gas Sectors, the Government of the Republic of Indonesia now being represented by BP Migas will usually enter into a Production Sharing Contracts (PSC) with the Oil and Gas Contractors, where the Oil and Gas Contractors will be responsible to seek the funds and technology for seeking the oil and gas reserve deposits starting from the general survey, exploration, exploitation and producing the commercial oil and gas products, where all the risks shall be borne solely by the Oil and Gas Contractors.

Once the Oil and Gas produced from a certain field /portion of Contract Area are considered and agreed by BP Migas and the Oil and Gas Contractor, as commercial field / commercial portion of the Contract Area, ready to be developed for commercial production, then all of the expenses and costs incurred by the Oil and Gas Contractors, shall be cost recovered by the Government of Indonesia (GOI).

These cost recovery are taken from the Oil and Gas produced from such Contract Area during the current Year pursuant to the terms and conditions under the PSC. Since there is a cost recovery mechanism introduced by the GOI, then the GOI through BP Migas shall have the right to manage the oil and gas operations conducted by the Oil and Gas Contractors in terms of approvals of performing the services and procuring the services and contracts relating to the operations of the oil and gas activities.

Accordingly, all the material and goods being purchased and used by the Oil and Gas Contractors shall be owned by the GOI, however, for the term of the PSC, the oil and gas Contractors shall have the right to use such materials and goods for performing the oil and gas operations. Furthermore after the operating cost and expenses are being recovered by GOI or BP Migas, there will be an Equity oil and gas split between the Oil and Gas Contractors and BP Migas / the GOI.

Whereas, relating to the General Mining Activities, there is no any such cost recovery mechanism made and developed by the Government of Indonesia to the Mining Contractors for the costs incurred and spent by the Mining Contractors. There is also no any Equity split of production of the General Mining Products between the GOI and the General Mining Contractors, except to Coal Mining Contractors where there is a certain split of production around 13, 5 % for the GOI pursuant to the Coal Mining Cooperation Agreement between the Coal Mining Contractors and the GOI.

The Government’s take in the General Mining is from the royalty of the Production of the Mining products which are being sold to the Buyers of the General Mining products which is around 1 % to 3 %. There is a certain sort of rental fee of the Area per HA, which is a progressive rate starting from the General Survey period, which will be increased in a certain percentage during the explorations phase, production phase until marketing phase.

These rental fee is being adjusted and modified from year to year. There are also some instances, where the General Mining Contractors are entering into an agreement with the Local Government, where a certain Community Development program is being agreed upon, for which a certain percentage of its annual production is agreed upon to be contributed for the development of the Local Area in the frame work of Community Development.

In these arrangements, the General Mining Contractor may try to request for assurance from the Local Authority such as the Bupati, that such contribution is really being used for the Local Area Development and not being transferred to the Central Government, which was frequently experienced, as not being used for such respective Local Area Development.

Accordingly we can see that, even though, the products are taken from the same Indonesian Mining Territory within the Territory of the Republic of Indonesia, the treatment in entering the agreements between the GOI and the Contractors, are being ruled and treated differently.

Agung Supomo Suleiman October 7, 2008 Practicing as Business Lawyer particularly in the Oil and Gas and General Mining, and Coal Mining Sectors in Indonesia for more than 25 Years since 1985. Partner at the Law Firm of Suleiman Agung & Co http://www.sacolaw.blogspot.com http://www.agungssuleiman.blogspot.com email : agungsacolaw@telkom.net agungsuleiman@gmail.com Mobile Phone : 0816830647