The Nonconventional Oil and Gas Regulation is now Official

KATADATA - Nonconventional oil and gas industry now has a separated, special regulation than the conventional one. Energy and Mineral Resources (EMR) Ministry has officially issued the EMR Ministerial Regulation No. 38 Year 2015 about the acceleration of nonconventional oil and gas business development.

“Contractors can sell their oil and gas production from the nonconventional blocks before the first plan of development [PoD],” as quoted in Article 11 of the regulation. Nonconventional oil and gas produced from the exploration and exploitation activities is prioritized for the domestic needs. 

In the regulation, there will be three forms of cooperation contract, which are the production-sharing contract (PSC), the net sliding scale PSC, and gross sliding scale. For the PSC and net sliding scale PSC, the mechanism to be used is the first tranche petroleum (FTP) where the sales results are divided without calculating the government’s portion during the early stage of production, but with cost recovery still included. But with the gross split sliding scale, the sales results will be divided based on the agreed amount in the cooperation contract. 

Regarding the time period of the contract, the longest available time for the contract is 30 years. After the contract expires, it can still be extended 20 years by the latest for every renewal period. The contract extension / renewal can be done based on the technical and economic considerations in the field’s development.

The nonconventional oil and gas contractors are also obligated to prepare funding that is placed in a joint account that must be approved by the contractor(s) and SKK Migas. The funding must be at 10 percent from the total exploration commitment, or US$ 1.5 million, or 10 percent from the total budget of the whole commitment planned for two years of exploitation period, or US$ 1 million. 

The reserve calculation for the approval of PoD from the exploration and exploitation activities is determined based on the proven reserve of the oil and gas plus 70 percent of probable reserve. The calculation of reserve for the approval of PoD can be done with no base of reserve certification. 

EMR Minister only determines the first nonconventional oil and gas field development approval based on SKK Migas’ considerations. And from then on, the approval duty will be delegated to SKK Migas’ chief. 

With the new regulation, coal bed methane contractors, who still have existing contract, can suggest for amendments or a change in the cooperation contract scheme. This suggestion can be submitted after fulfilling at least 60 percent of commitment. SKK Migas’ Chief will also give his recommendation and considerations to the EMR Minister after hearing the contractors’ suggestion. And after it is approved, the minister will set a form and points of requirements in the cooperation contract scheme. 

The ministerial regulation that was launched on November 2^nd 2015 has 14 Articles, consisting of the definition of nonconventional oil and gas definition. Nonconventional oil and gas definition consists of shale oil, shale gas, tight sand gas, coal bed methane (CBM) gas, and methane-hydrate; and they can only be “harvested” by using certain technologies like the fractionation.