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

Monday, October 13, 2008

People's Representative Proposal to Law No. 22/2001 Oil/Gas Law

At this present moment the People's Representatives are making suggestions to LAW No. 22/2001 Oil/Gas Law.

The suggestion are among others :

Note the inside brackets are the suggestions

Article 1 Paragraph 19 The Cooperation Agreement is a Production Sharing Contracts or other form of Cooperation Agreement which is more beneficial to the States by "increasing the products and efficiency and the results shall be used for the most welfare of the people.

Article 8 paragraph 1

The Government is "obligated" to grant priority upon the usage of the Gas for the domestic consumption and shall have the task do make available the Oil Strategic Reserve to support the supply of the Domestic Oil which shall be further agreed with a Government Rulings.

Article11 paragraph 2 Every Cooperation Agreement "which shall be signed is obligated to be consulted and obtained the approval" from the Peoples Parliament of the Republic of Indonesia.

Article 12 paragraph 1 The Working Area which shall be offered to the Business Body (Badan Usaha) or Fixed Business Body ( Badan Usaha Tetap) is determined by the Minister after consultation with the Local Government and "the Local Peoples Representatives."

Article 12 paragraph 3 The Minister shall determined the Business Body or the Fixed Business Body "to" conduct the Exploration and Exploitation in the Working Area as meant by paragraph 2 "after obtaining the approval form the Local People Representatives".

Article 14 paragraph 1 The duration of the Cooperation Agreement as meant by Article 11 paragraph 1 shall be performed at the most" 25 years"

Article 14 paragraph 3 "The Government shall be entitled to revise and /or cancel the working contract if it is deemed not to be in accordance with the national interest and State with the consent of the Peoples Representative Body."

Article 14 paragraph 4 "The People Representative is entitled to propose revision upon the cooperation agreement as meant by paragraph 1 if in the implementation evidence is found, showing that there is a violation against the rulings.

Article 22 paragraph 1 The Business Body or the Fixed Business Body is obligated to deliver 75% of the oil and/or Gas production to full fill the domestic consumption.

Article 28 paragraph 1 A Oil Fuel and the result of certain ......(olahan) may only be exported after the domestic consumption is fulfilled.

Article 28 paragraph 2 The Oil and Gas price is determined by the Government after obtaining the approval from the Peoples Representative Body.

Business Lawyer

As a business Lawyer you must have the skill and knowledge of drafting legal advice and legal opinion relating to the business of your Client.From my experiencing as an Independent Lawyer for more then 10 Years, I realize that we have to concentrate on a certain field of business that you are mastering and that types of Client that are being referred to you.

Most of the Clients that are being forwarded to my firm, are Oil and Gas Contractors, Mining Companies, Coal Trader Companies who intend to purchase coal but at the same time is willing to financing the Coal Mining License owner who needs some financing back up to support their infrastructure such as their Coal Plan Facilities, in order to produce their Coal products.

Occasionally I had also been requested to assist Hotels who wishes to enter into a Management Agreement with other Hotel who has international interchange contacts, which includes the Technical Assistance Agreements.

During my previous experience of Lawyering, I was also experiencing drafting Financing arrangements such as Loan Agreements including its collaterals agreements, which involve the financing of Vessels operations and Aircraft Operations.

Thus, it was really quite a wide range of experience, and when I was in the Oil and Gas Lawyer as in-house Lawyers, I usually handle explorations and productions sides of the operations, in which we are also requested by the end-users to assist them in reviewing and drafting the Vessels Charter Agreement as well as the Helicopter Agreements.

Since I was frequently involve in the Vessel and Aircraft business operations, which includes from the registration of the flags and nationality and numbers of the Vessel and the Aircraft in the respective Directorate General Office, which for Vessels are in the Directorate General of Sea Communications and the Aircraft with the Directorate General Of Air Communication, it really helps me, conducting such supporting activities which are needed in the Oil and Gas Operations as well as in the General Mining Operations.

On the upfront side within the Oil and gas Operations, we as Lawyers are requested to advise on the Production Sharing Contracts Agreements (PSC), starting from reviewing and advising the management upon the meanings or interpretation of such PSC.

We are also frequently requested to contact the Directorate of Oil and Gas, which is now the Directorate of Mineral and Energy, to discuss about issues which needs some clarifications. When I was experiencing as In House Legal Counsel in the Mining Copper Contractor, we also were usually requested to make contacts with the Legal Bureau of Legal Divisions within the Directorate General Of General Mining, to obtain or clarify certain significant informations relating to the COW (Contract of Work) as well as the rules and regulations relating to the General Mining Activities.

Based on the above range of experience, as a business lawyer I am attached and is most interested in the progress and development of the legal aspects occurring in Indonesia, in particular related to the Oil and Gas, General Mining Operations, Coal Mining and other related legal aspects surroundings such operations activities. Jakarta, October 13 , 2008

Agung Supomo Suleiman

Partner of the Law Firm of Suleiman Agung & Co http://www.sacolaw.blogspot.com

Email : agungsacolaw@telkom.net

Mobile Phone : 0816830647

Friday, October 10, 2008

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

Wednesday, October 08, 2008

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

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