Government Regulation of the Republic of Indonesia Number 35 of 2004

8/22/2019 Government Regulation of the Republic of Indonesia Number 35 of 2004

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PRESIDENT OFTHE REPUBLIC OF INDONESIA

GOVERNMENT REGULATION OF THE REPUBLIC OF INDONESIA

NUMBER 35 OF 2004

CONCERNING

OIL AND GAS UPSTREAM BUSINESS ACTIVITIES

PRESIDENT OF THE REPUBLIC OF INDONESIA,

Considering : that to implement the provisions of Art icles 8, and 18; Art icle

19, paragraph (2); Art icle 20, paragraph (6); Art icle 21,

paragraph (3); Art icle 22, paragraph (2); Art icle 31,paragraph (5); Art icles 37 and 43 of Law No. 22 of 2001

concerning Oil and Gas, i t is necessary to establ ish a

Government Regulat ion on Oil and Gas Upstream BusinessAct ivi t ies;

In v iew of : 1. Art icle 5, paragraph (2) , of the 1945 Const i tut ion as

having been amended by the Fourth Amendment to the 1945

Const i tut ion;

2. Law No. 22 of 2001 on Oil and Gas (State Gazet te of the

Republic of Indonesia of 2001 No. 136, Supplement to the

State Gazet te No. 4152);

3. Government Regulat ion No. 42 of 2002 on Oil and Gas

Upstream Business Act ivi t ies Implementing Body (StateGazet te of the Republic of Indonesia of 2002 No. 81,

Supplement to the State Gazet te No. 4216 );

4. Government Regulat ion No. 31 of 2003 on the

Transformation of Oil and Gas State Mining Company(PERTAMINA) into a Limited Liabi l i ty Company (Persero)

(State Gazet te of the Republic of Indonesia of 2003 No.

69);


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DECIDES

To establ ish : A GOVERNMENT REGULATION CONCERNING OIL AND

GAS UPSTREAM BUSINESS ACTIVITIES.

CHAPTER I

GENERAL PROVISIONS

Article 1

Referred to in th is Government Regulat ion as:

1. Crude Oil , Natural Gas, Oil and Gas, Mining Authori ty, General Survey,

Upstream Business Act ivi t ies, Explorat ion, Exploi tat ion, Indonesian Legal

Mining Terri tory, Operat ional Area, Business Enti ty, Permanent

Es tabl ishment, Cooperation Contract , Central Government, Implementing Body,and Minister shal l be as def ined in Law No. 22 of 2001 on Oil a nd Gas.

2. Coalbed Methane shall mean natural gas (hydrocarbon) in which methane is themain component that occurred natural ly in a calci f icat ions process in an

entrapped and absorbed condit ion in the coal and/or coal layer.

3. Open Area shall mean any part of the Indonesian Legal Mining Terri tory that has not been designated as an Operat ional Area.

4. Product ion Sharing Contract shal l mean a form of Cooperat ion Contract in

Upstream Business Act ivi t ies based on product ion sharing principles.

5. Service Contract shal l mean a form of Cooperat ion Contract for the

implementat ion of Oil and Gas Exploi tat ion based on the principle of provision

of fee for the product ion made.

6. Contractor shal l mean the Business Enti ty or Permanent Establ ishment that is

authorized to carry out Oil and Gas Explorat ion and Exploi tat ion in anOperational Area based on a Cooperat ion Contract with the Implementing Body.

7. Data shal l mean al l facts , clues, indicat ions, and information ei ther in the form

of a wri t ing (character) , f igure (digi tal) , drawing (analog), magnetic media,

document , rock sample, f luid, or in another form, which are obtained from theresul t of Oil and Gas General Sur vey, Explorat ion and Exploi tat ion.

8. Department shal l mean the department which areas of dut ies and authori tyinclude Oil and Gas business act ivi t ies.

9. Pertamina shall mean the State Oil and Gas Mining Company which was

establ ished based on Law No. 8 of 1971 on State Oil and Gas Mining Company

vide Law No. 22 of 2001 on Oil and Gas.

10. PT. Pertamina (Persero) shal l mean a l imited l iabi l i ty (Persero) which was

establ ished based on Government Regulat ion No. 31 of 2003 on The

Transformation of State Oil and Gas Mining Company (PERTAMINA) into aLimited Liabi li ty Company (Persero).


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CHAPTER II

OPERATIONAL AREA

Article 2

(1) The Upstream Business Act ivi t ies shal l be performed in an Operat ional Area

.(2) The Operat ional Area referred to in paragraph (1) shal l be planned and

prepared by the Minister by considering the opinions of the Implementing

Body.

Ar ticle 3

(1) The Minister shal l determine and announce the Operat ional Area to the

of fered to Business Enti t ies and Permanent Establ ishments.

(2) In determining the Operat ional Area referred to in paragraph (1) , the

Minister shal l consult with the Governor whose administrative terri toryencompasses the Operat ional Area to be of fered.

(3) The consul tat ion referred to in paragraph (2) shal l be aimed at giving

explanations and obtaining information about the planned of fer of certainareas that are deemed to be have potent ial resources of Oil and Gas to become

Operational Areas.

Ar ticle 4

(1) The Minister shal l establ ish an Operat ional Area of fering pol icy based on

technical , economic, and risk level considerat ions and under the principles of transparency, equitabi l i ty, accountabil i ty and competi t iveness.

(2) The Operat ional Area of fering pol icy provided for in paragraph (1) shal l bein the form of a tender o r a direct of fer.

Ar ticle 5

(1) The of fer of an Operat ional Area to the Business Enti ty or Permanent

Establ ishment shal l be made by the Minister.

(2) In making the of fer of an Operat ional Area referred to in paragraph (1) , the

Minister shall coordinate with the Implementing Body.

(3) The Business Enti ty or Permanent Establ ishment may submit a request to the

Minister to obtain an Operat ional Area.

(4) In the event that PT. Pertamina (Persero) submits a request to the Minister to

obtain a certain open Operat ional Area, the Minister may approve such a

request by considering the work program, technical and f inancial capaci ty of PT. Pertamina (Persero) and insofar as the shares of PT. Per tamina (Persero)

are 100% owned by the State.

(5) PT. Pertamina (Persero) referred to in paragraph (4) may not submit a

request for an Operat ional Area that has already been of fered.


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Ar ticle 6

(1) The Minister shal l determine a Business Enti ty or Permanent Establ ishment to

be a Contractor that is authorized to perform the Upstream Business Act ivi t ies

in an Operat ional Area as provided for in paragraph (1) of Art icle 2.

(2) In determining the Business Enti ty or Permanent Establ ishment referred to in

paragraph (1), the Minister shall coordinate with the Implementing Body.

(3) To each Business Enti ty or Permanent Establ ishment referred to in paragraph

(1), only one Operat ional Area shall be provided.

Ar ticle 7

(1) The Contractor shal l return any part or the whole of i ts Operat ional Area in

stages to the Minister through the Implementing Body in accordance with theCooperat ion Contract .

(2) In addit ion to those speci f ied in paragraph (1) , the Contractor may return anypart or the whole of its Operational Area to the Minister through the

Implementing Body prior the expirat ion of the Cooperat ion Contract term.

(3) The Contractor shal l return the ent ire Operat ional Area to the Ministerthrough the Implementing Body af ter the Cooperat ion Contract term has

expired.

Ar ticle 8

In the event that the Contractor returns i ts ent ire Operat ional Area ent irely asprovided for in paragraph (2) o f Art icle 7 , it shal l f irst fu lf i l l a l l commitments of

def ini te Explorat ion and other obl igat ions under the Cooperat ion Contract .

Ar ticle 9

An Operational Area that has been re turned by the Business Enti ty or PermanentEs tabl ishment as se t forth in Art icle 7 shal l become an open Operat ional Area.

Art icle 10

Regarding any part of an Operat ional Area that is not used by the Contractor, theMinister may, upon consul tat ion with the Implementing Body, take such a part of

Operat ional Area and set a pol icy on i ts exploi tat ion based on the considerat ions of

opt imizat ion of Oil and Gas resources u t i l izat ion.

CHAPTER III

GENERAL SURVEY AND OIL AND GAS DATA

Article 11

(1) To support the preparat ion of an Operat ional Area, the Minister shal l conduct a General Survey.

(2) The act ivi ty of the General Survey referred to in paragraph (1) shal l be

per formed at an open Operat ional Area in the Legal Mining Terri tory.


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(3) The General Survey shal l include geological , geophysical , and geochemical

surveys.

Art icle 12

In addition to those speci f ied in paragraph (2) o f Article 11, the General Survey may

be conducted across the Operat ional Area af ter making prior coordinat ion with the

Implementing Body to not i fy the Contractor concerned.

Art icle 13

(1) As part of General Survey implementat ion as provided for in Art icle 11, theMinister may give a l icense to a Business Entity to conduct a General Survey.

(2) The General Survey conducted by a Business Enti ty as set forth in paragraph

(1) shal l be at the expense and risk of the Business Enti ty concerned.

(3) Before conducting a General Survey, the Business Enti ty referred to in

paragraph (1) shall submit to the Minister the schedule and theimplementat ion procedure of the General Survey.

Art icle 14

The Business Enti ty conducting the General Survey set forth in paragraph (1) of

Art icle 13 may maintain and uti l ize the data resul ted from the General Survey unti l

the expirat ion of the l icense referred to in paragraph (1) of Art icle 13.

Art icle 15

(1) The data obtained from the General Survey and from the Explorat ion and

Exploi tat ion shall become the States property control led by the Government .

(2) The Minister shal l establ ish a regulat ion on the processing and use of the Data

obtained from the General Survey and from the Explorat ion and Exploi tat ionas provided for in paragraph (1) .

Art icle 16

The Data processing referred to in Art icle 15 shal l comprise the acquirement ,administrat ion, processing, arrangement , s torage, maintenance, and destruct ion of

Data.

Art icle 17

(1) Any consignment , del ivery and/or conveyance of the Data referred to in Art icle

15 shall have the consent of the Minister.

(2) The Minister shal l determine the types of Data that require the consent

referred to in paragraph (1) .

Art icle 18

(1) The Contractor may manage the Data resul ted from Explorat ion andExploi tat ion act ivi t ies in i ts Operat ional Area as speci f ied in Art icle 16 during

the term of Cooperat ion Contract , except for the destruct ion of Data.


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(2) Any Contractor who appoints another party to perform the Data processing

referred to in paragraph (1) shal l obtain the approval of the Minister.

(3) The other party appointed to perform the Data processing referred to in

paragraph (2) shal l meet the requirements prescribed by the prevai ling lawsand regulat ions.

(4) The Contractor shal l s tore the Data that is used pursuant to paragraph (1) inthe Indonesian Legal Mining Terri tory.

(5) The Contractor may retain the copy of Data beyond the Indonesian Legal

Mining Territory af ter it has obtained the consent o f the Minister.

Art icle 19

(1) The Business Enti ty conducting the General Survey set forth in Art icle 13 shal l turn over al l the Data i t has acquired to the Minister af ter the expirat ion of

the l icense granted.

(2) At the expirat ion of Cooperat ion Contract as speci f ied in paragraph (3) of

Art icle 7 , the Contractor shal l turn over al l the Data derived from the resul tsof Explorat ion and Exploi tat ion to the Minister through the Implementing

Body.

(3) The Contractor shal l del iver to the Minister, through the Implementing Body,

al l the Data i t has obtained from the resul ts of Explorat ion and Exploi tat ion a t

i ts Operat ional Area when the Operat ional Area is returned as speci f ied in

Art icle 7.

(4) The Contractor whose Cooperat ion Contract has expired or who transfers al l

i ts interests to another Business Enti ty or Permanent Establ ishment maysubmit a request for an approval to the Minister to retain and use the copy of

Data from i ts Operat ional Area.

(5) The Data referred to in paragraph (4) may not be transferred to another partywithout the consent of the Minister.

Art icle 20

The Contractor shal l del iver to the Minister, through the Implementing Body, the

Data derived from the resul ts o f Explorat ion and Exploitation within not more than

three (3) months from the end of the Data acquirement , processing and interpretat ion.

Art icle 21

Any exchange of Data between domest ic Contractors or between domest ic Contractors

and other overseas part ies may be ini t iated af ter i t has obtained the consent of theMinister.

Art icle 22

In respect of the confident ial ity, the Data shal l be classi f ied as fol lows:

a. General Data, that is the data on the ident i f icat ion and geographic locat ion of

the potent ial Oil and Gas, reserve and well and the Oil and Gas product ion.


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b. Basic Data, that is the descript ions or quanti ty of the resul ts of geological ,

geophysical, geochemical explorat ion, dri ll ing and product ion recording.

c. Processed Data, that is the Data obtained from the resul ts of analysis and

evaluat ion of Basic Data.

d. Interpretat ion Data, that is the Data obtained from the resul ts of

interpretat ion of Basic Data and/or Processed Data.

Art icle 23

(1) The Basic Data, Processed Data and Interpretat ion Data referred to in Art icle22 shall be confident ial for a certain period of t ime.

(2) The confident ial i ty period set forth in paragraph (1) shal l be as determined

below:

a. Basic Data: four (4) years.

b. Processed Data: six (6) years.

c. Interpretat ion Data: eight (8) years.

(3) In the event that an Operat ional Area is returned to the Government as

provided for in Art icle 7 , a l l the Data from such an Operational Area shall no

longer be classi f ied as confident ial Data.

CHAPTER IV

IMPLEMENTATION OF UPSTREAM BUSINESS ACTIVITIES

Art icle 24

(1) The Upstream Business act ivi t ies shal l be carried out by a Business Enti ty or aPermanent Establ ishment based on the Cooperation Contract made with the

Implementing Body.

(2) The Cooperat ion Contract referred to in paragraph (1) shal l at least contain thefo llowing provisions :

a. The ownership of the Oil and Gas resource shal l remain with theGovernment unt i l the date of turnover;

b. The management control over the operat ions carried out by the

Contractor shal l be performed by the Implementing Body;

c. The capital and risk shal l be the ful l l iabi l i ty of the Contractor.

Art ic le 25

(1) The Minister shal l determine the form and the principal provisions of the

Cooperat ion Contract to be applied to a certain Operat ional Area byconsidering the risk level and the greatest possible benef i ts to the State as well

as the prevai l ing laws and regulat ions.


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(2) The Minister shal l determine the form and the principal provisions of

Cooperat ion Contract referred to in paragraph (1) af ter considering the

opinions of the Head of Implementing Body.

Art icle 26

The Cooperat ion Contract shal l at least c ontain the fol lowing principal provisions:

a. State revenue;

b. Operat ional Area and i ts turnover;

c. funding obl igat ion;

d. transfer of ownership of Oil and Gas produced;

e. term and condit ions of contract extension;

f . set t lement of d isputes;

g. obl igat ion to supply Oil and/or Gas for domest ic needs;

h. expirat ion of contract;

i . mining post-operat ion obl igat ions;

j . industrial safe ty and health;

k. environmental management;

l . transfer of r ights and obl igat ions;

m. required report ing;

n. f ield development plan;

o. the priori ty given to the use of domest ic products and services;

p. development of the surrounding community and guaranty of the communitycustomary rights;

q. the employment priori ty given to Indonesian personnel .Art icle 27

(1) The term of the Cooperat ion Contract referred to in Art icle 24 shal l be for a

maximum period of thirty (30) years.

(2) The term of Cooperat ion Contract referred to in paragraph (1) shal l consist

of the Explorat ion phase and the Exploi tat ion phase.

(3) The Explorat ion phase referred to in paragraph (2) shal l be six (6) years and

extendable one (1) t ime only for a maximum period of four (4) years based onthe request of the Contractor, provided that the Contractor has ful f i l led i ts

minimum obligat ion under the Cooperat ion Contract , the approval of which

shal l be given by the Implementing Body.


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(4) In the event that during the Explorat ion phase referred to in paragraph (3)

the Contractor fai ls to discover any Oil and/or Gas reserve that can be

produced commercial ly, the Contractor shal l return the ent ire Operat ional

Area.

Art icle 28

(1) The Cooperat ion Contract referred to in paragraph (1) of Art icle 27 may beextended for a maximum extension period of twenty (20) years for each

extension.

(2) The condit ions or form of Cooperat ion Contract in the Cooperat ion Contract extension speci f ied in paragraph (1) shal l remain prof i table to the State.

(3) The Contractor shal l submit a request for the Cooperat ion Contract extension

referred to in paragraph (1) to the Minister through the Implementing Body.

(4) The Implementing Body shall evaluate the request for a Cooperat ion Contract

extension, as the basis for the Minister 's considerat ions in approving or

disapproving the Contractor 's request .

(5) The request for a Cooperat ion Contract extension referred to in paragraph (3)may be submit ted at the earl iest ten (10) years and at the latest two (2) years

prior to the Cooperat ion Contract expiration.

(6) Excepted from the provisions set out in paragraph (5) shal l be a Contractor

who is bound to a Gas sale and purchase agreement , in which case the

Contractor may submit a request for the extension of Cooperat ion Contract

earl ier than the t ime l imit speci f ied in paragraph (5) .

(7) In giving the approval of the Cooperat ion Contract extension referred to in

paragraph (1), the Minister shal l consider the factors such as Oil and/or Gasreserves of the related Operat ional Area, the potent ials or the certainty of

market /demand, and technical / economic acceptabil i ty.

(8) Based on the resul ts of the evaluat ion and considerat ions referred to inparagraphs (4) and (7) the Minister may dismiss or approve the request for

Cooperat ion Contract extension referred to in paragraph (1) with respect to

certain periods, forms and condit ions of Cooperat ion Contracts.

(9) PT. Pertamina (Persero) may submit the request to the Minister in the

case of an Operat ional Area which Contract has expired.

(10) The Minister may approve the request referred to in paragraph (9) by

considering the work program, technical and f inancial capaci ty of PT.

Pertamina (Persero), insofar as the shares of PT. Pertamina (Persero) are

100% owned by the State, and other matters related to the Cooperat ion

Contract concerned.

Art icle 29

(1) The Contractor may propose to the Minister through the Implementing Body anamendment of the terms and condit ions of Cooperat ion Contract .

(2) The Minister may approve or dismiss the recommendation referred to in

paragraph (1) based on the considerat ions /opinions of the Implementing Body

or the opt imum benef i ts to the s tate.


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Art icle 30

(1) Within the period of 180 days as of the ef fect ive date of the Cooperat ion

Contract , the Contractor shal l commence i ts operat ions.

(2) In the event of the Contractor 's fai lure to perform the obl igat ion speci f ied in

paragraph (1), the Implementing Body may propose to the Minister to obtain

the approval of Cooperat ion Contract termination.

Art icle 31

(1) Within the f irst three (3) years during the Explorat ion phase referred to inparagraph (3) o f Article 27, the Contractor shal l carry out a def ini te work

program with such estimated expenditures as speci f ied in the Cooperat ion

Contract .

(2) I f the def ini te work program referred to in paragraph (1) is technical ly or

economically impossible to be real ized, the Contractor may recommend an

amendment to the Minister through the Implementing Body for approval .

(3) The Minister may approve or dismiss the proposed def ini te work programreferred to in paragraph (2) by considering the opinions of the Implementing

Body.

(4) In the event that the Contractor terminates the Cooperat ion Contract and fai ls

to perform any part or the whole of the def ini te work program referred to in

paragraph (2), the Contractor shall pay to the Government through the

Implementing Body an the amount equal to the expenditures incurred relatedto the unreal ized port ion of the def ini te work program.

Art icle 32

In the event that the Contract fa i ls to per form its obl igat ions in accordance with the

Cooperat ion Contract and the prevai l ing laws and regulat ions, the Implementing Bodymay propose to the Minister to terminate the Cooperat ion Contract .

Art icle 33

(1) The Contractor may transfer, assign and convey any part any part or al l of i tsrights (part icipat ing interests) and obl igat ions to another party af ter having

obtained the approval of the Minister, which shal l be given based on the

considerat ions of the Implementing Body.

(2) In the event that the transfer, assignment and conveyance of any part or al l of

the Contractor 's r ights and obl igat ions as provided for in paragraph (1) are

made to a non-af f i l iated company or to the company other than business

partners within the same Operational Area, the Minister may request theContractor to of fer them f irst to the nat ional companies.

(3) The disclosure of Data for the transfer, assignment and conveyance of any part

or al l of the Contractor 's r ights and obl igat ions to another party as set forthin paragraph (1) shal l require the approval of the Minister through the

Implementing Body.


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(4) The Contractor may not transfer any of i ts r ights and obl igat ions on a majori ty

basis to another party, which is not i ts af f i l iate, within the f irst three years '

per iod of the Exploration phase.

Art icle 34

Commencing from the f ield development plan to be ini t ial ly produced in an

Operational Area, the Contractor shal l of fer 10% of i ts part icipat ing interests toRegional Governments Enterprises.

Art icle 35

(1) Let ters of intent to obtain the part icipat ing interests referred to in Art icle 34

shal l be del ivered by the Regional Governments Enterprises within not more

than sixty (60) days from the date of the of fer by the Contractor.

(2) In the event that the Regional Governments Enterprises do not submit any

let ter of intent within the period speci f ied in paragraph (1) , the Contractor

shal l o f fer the same to the nat ional companies.

(3) In the event that no let ter of intent is submit ted by the nat ional companieswithin the period of s ixty (60) days from the date of the Contractor 's of fer to

them, then the of fer shal l be declared closed.

Art icle 36

(1) The Contractor shal l al locate a fund for the post-operat ional act ivi t ies of

Upstream Business Act ivi t ies.

(2) The obl igat ion referred to in paragraph (1) shal l be performed with ef fect

from the Explorat ion phase and carried out through a work plan and budget.

(3) The fund al locat ion referred to in paragraphs (1) and (2) shal l be agreed upon

by the Contractor and the Implementing Body and funct ion as a fund reservethat is special ly earmarked for the post-operat ional act ivi t ies of the Upstream

Business Act ivi t ies in the related Operat ional Area.

(4) The procedure on the use of the fund reserve special ly earmarked for post-

operat ions as referred to in paragraph (3) shal l be def ined in the Cooperat ionContract .

Art icle 37

(1) The Cooperat ion Contract shal l be made in Indonesian and/or English

language.

(2) Where the Cooperat ion Contract is made in Indonesian and Englishlanguage, in the event of any di f ference of construct ion thereof , the

construct ion of ei ther the Indonesian or the English version shall apply in

accordance with the agreement of the part ies.

Art icle 38

The Cooperat ion Contract shal l be governed by and subject to Indonesian law.


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Art icle 39

(1) The Contractor shal l report the discovery and resul ts of cert i f icat ion of Oil

and/or Gas reserve to the Minister through the Implementing Body.

(2) In developing and producing the Oil and Gas f ield the Contractor shal l carry

out a conservat ion and implement i t according to sound technical standards.

(3) The conservat ion referred to in paragraph (2) shal l be carried out through the

optimizat ion of exploi tat ion and the ef f icient ut i l izat ion of Oil and Gas.

(4) The sound technical standards referred to in paragraph (1) shal l include:

a. ful f i l l ing the safety and health as well as environmental requirements;

b. producing Oil and Gas in accordance with the sound reservoirmanagement pract ices;

c. producing Oil and Gas wells in an appropriate manner;

d. using the appropriate Enhanced Oil Recovery (EOR) advancedtechnology;

e. promoting the ef forts of reservoir capaci ty improvement to f low the

f lu ids using appropriate techniques;

f . fu l f il l ing the standard requirements of the required equipment .Art icle 40

The Contractor shal l not i fy the Minister through the Implementing Body when evident is found or obtained that the spreading of an Oil and/or Gas reservoir enters the

Operational Area of another Contractor or the terri tory/ cont inental land of another

country.

Art icle 41

(1) The Contractor shal l conduct a uni t izat ion when there is evident that the

spreading of a reservoir enters the Operat ional Area of another Contractor.

(2) As regards the spreading of a reservoir that enters an Open Area, the

Contractor shal l conduct a uni t izat ion when such an Open Area subsequentlybecomes an Operat ional Area.

(3) In the event that up to a maximum period of f ive (5) years the Open Area

referred to in paragraph (2) has not turned into an Operat ional Area, the

Contractor concerned may request for the proport ional expansion of i tsOperat ional Area through the Implementing Body.

(4) The uni t izat ion referred to in paragraphs (1) and (2) shal l require the

approval of the Minister.


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Art icle 42

The Minister shal l determine the operator who should conduct the uni t izat ion based

on the agreement between the Contractors conducting the uni t izat ion and the

considerat ions of the Implementing Body.

Art icle 43

As regards the spreading of a reservoir that enters the terri tory/ cont inental land of

another country, the set t lement wil l be determined by the Minister based on the

continental land agreement between the Government of the Republic of Indonesia and

the Government of the other country concerned as well as the considerat ion on theoptimal benef i ts to the state.

Art icle 44

(1) The act ivi t ies of f ield processing, transportat ion, s torage, and trading of ownproducts performed by the Contractor concerned shall const i tu te the Upstream

Business Act ivi t ies.

(2) In the event of excess capaci ty on the f ield processing, transportat ion, s torage

and trading faci l i t ies def ined in paragraph (1) , the Contractor may, subject tothe approval of the Implementing Body, take advantage of such excess capaci ty

by al lowing another party to use them based on the proport ional sharing of operat ing costs .

Art icle 45

(1) The faci l i t ies constructed by the Contractor to perform the act ivi t ies of f ield

processing, transportat ion, s torage and trading of own products as referred toin Art icle 44, shal l not be intended to gain prof i ts and/or earnings.

(2) In the event that the faci l i t ies referred to in paragraph (1) are used joint lywith another party by imposing a charge or rent to gain prof i ts and/or

earnings, the Contractor shal l organize a separate Upstream Business

Activi t ies Body and obtain a Business License.

CHAPTER V

USE OF OIL AND GAS TO S UPPLY DOMESTIC NEEDS

Art icle 46

(1) The Contractor shal l be responsible for part icipat ion in the supply of domest icneed for Oil and/or Gas.

(2) The part icipat ion of the Contractor in the supply of domest ic needs as

provided for in paragraph (1) shal l be determined on a prorate basis

according to the share of Oil and/or Gas product ion.

(3) The maximum amount of the Contractor 's part icipat ion in the supply referred

to in paragraph (2) shal l be 25% (twenty f ive percent) of the Oil and/or Gas

product ion.

(4) The Minister shal l determine the amount of supply of each Contractor to meet the domest ic need for Oil and/or Gas as referred to in paragraph (3) .


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Art icle 47

The Minister shal l establ ish a pol icy on the supply of Oil and/or Gas for the domest ic

demands annually.

Art icle 48

(1) Any new Natural Gas reserve discovered by the Contractor shal l be reportedf irst to the Minister to supply the domest ic demands as provided for in Art icle

46.

(2) In the event that the Natural Gas reserve referred to in paragraph (1) is to beproduced, the Minister shal l f irst g ive the domest ic consumers an opportuni ty

to meet their needs within a maximum p eriod of one year.

(3) Within the period of three (3) months commencing from the expirat ion of thet ime l imit of one year speci f ied in paragraph (2) , the Minister shal l give a

notice to the Contractor concerning the condit ion of the domest ic demands.

Art icle 49

The mechanism of the Oil and/or Gas del ivery by the Contractor as speci f ied in

paragraph 46 shall be def ined in the Cooperat ion Contract.

Art icle 50

(1) The Minister shal l establ ish the pol icy on the use of Natural Gas from the Gas

reserve by ensuring that the domest ic needs can be opt imally sat isf ied with dueconsiderat ion of the public interests , s tate interests , and the nat ional energy

pol icy.

(2) In establ ishing the pol icy on the use of Natural Gas referred to in paragraph

(1) the Minister shal l consider the technical aspects, which cover the Gas

reserve and market opportuni ty, the good infrastructure avai lable or planned,and the recommendations of the Implementing Body.

Art icle 51

(1) Any Oil and Gas discovered, produced and sold shal l be subject to a quali tyevaluat ion.

(2) Any expenses arising out in the quali ty evaluat ion provided for in paragraph(1) shal l be charged as operat ing costs .

(3) The further regulat ion on the procedure of Oil and Gas quali ty evaluat ion

referred to in paragraph (1) shal l be st ipulated by the Minister.

CHAPTER VI

STATE REVENUE

Art icle 52

(1) The Contractor who performs Upstream Business Act ivi t ies shal l pay the state

obligat ions in the form of tax and non-tax state revenues.


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(2) The Tax State Revenue referred to in paragraph (1) shal l consist of:

a. taxes;

b. import dut ies and other levies on import and excises;

c. regional taxes and charges.

(3) The Non-Tax State Revenue referred to in paragraph (1) shal l consist of:

a. the State 's share;

b. the State levies in the form of permanent contribut ions and Explorat ion

and Exploi tat ion contribut ions;

c. bonuses

Art icle 53

Pr ior to the execution of the Cooperat ion Contract, the Contractor may choose theobligat ion to pay the tax speci f ied in paragraph (2) of Art icle 52 under the fol lowing

opt ions:

a. fol low the provisions of laws concerning tax that are applicable at the t ime theContract is executed; or

b. fol low the provisions of the applicable laws concerning on tax.

Art icle 54

The provisions on the amount of the state share, s tate charges and bonuses referred

to in paragraph (3) of Art icle 52 and the method of payment shal l be set out in aseparate Government Regulat ion.

Art icle 55

(1) The distribut ion of Oil and Gas on the Product ion Sharing Contract between

the Government and the Contractor shal l be made at the point of del ivery.

(2) For the del ivery of Oil and Gas at the point of del ivery as speci f ied inparagraph (1) the measuring equipment determined by the Minister in

accordance with the prevai l ing laws and regulat ions shal l be used.

Art icle 56

(1) The investment and operat ing expenses incurred under the Product ion Sharing

Contract shal l be approved by the Implementing Body.

(2) The Contractor shal l recover (obtain the reimbursement for) the expenses i t

has incurred to carry out the Explorat ion and Exploi tat ion as referred to in

paragraph (1) according to the work plan and budget and the Authorizat ion of

Financial Expenditure approved by the Implementing Body af ter thecommercial product ion.


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Art icle 57

Al l the Oil and Gas produced by the Contractor under the Service Contract shall be

the property of the State and del ivered/handed over by the Contractor to the

Government .

Art icle 58

(1) The Contractor who carries out an Oil and/or Gas Exploi tat ion based on aService Contract shal l be provided with a fee.

(2) The amount of the fee referred to in paragraph (1) shal l be calculated

according to the total product ion of Oil and/or Gas and determined based onthe of fer of Business Enti ty or Permanent Establ ishment .

(3) The Contractor conducting the Exploi tat ion of Oil and/or Gas as set forth in

paragraph (1) shal l bear all expenses and risks aris ing during producing theOil and/or Gas.

(4) The fee referred to in paragraph (1) shal l be provided af ter the commencement of commercial product ion.

Art icle 59

The provisions concerning the Service Contract shal l be set out in a Ministerial

Decree.

Art icle 60

The Non-Tax State Revenue def ined in paragraph (3) of Art icle 52 shal l be therevenues of the Central Government and Regional Government , which distribut ion

shal l be made in accordance with the applicable laws and regulat ions.

Art icle 61

The Non-Tax State Revenue af ter being deducted by the Regional Government 'srevenue shall become the Non-Tax State Revenue originated from the Oil and Gaswhich can be part ly used by the Department in accordance with the applicable laws

and regulat ions.

CHAPTER VII

PROPRIETARY LAND AND STATE-OWNED LAND USE

SETTLEMENT PROCEDURE

Art icle 62

(1) Any Contractor who wishes to use plots of proprietary land or state-owned

land within i ts Operat ional Area shall f irst make set t lement on the use of landwith the t i t le holder or the user of the state-owned land in accordanc e with the

prevai l ing laws and regulations.

(2) The people holding the t i t les or the users of the state-owned land shall al lowthe Contractor who presents a Cooperat ion Contract , or the legi t imate copy

thereof , to conduct Explorat ion and Exploi tat ion on the related land, when theContractor concerned has made a set t lement that is agreed by the holders or

the users of such stated-owned land.


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Art icle 63

(1) The land use set t lement by the Contractor shal l be made through del iberat ions

and consensus with the holders of t i t les or the users of s tate-owned land in

accordance with the prevai l ing laws and regulat ions.

(2) The del iberat ions and consensus referred to in paragraph (1) may be held

direct ly with the holders of t i t les or the users of the state-owned landconcerned by means of a sale and purchase transact ion, exchange, reasonable

compensation, acknowledgement or other forms of indemnif icat ion.

(3) In the event that the aforementioned land is the communal land of a customarycommunity, the procedures of del iberat ions and consensus shal l observe the

communal decision-making procedure under the local customary law.

Art icle 64

(1) In the event that the number of people who hold the t i t les or the users of the

state-owned land is so large that it is not possible to hold ef fect ivedel iberat ions, such del iberat ions may be held part ial ly or with the

representat ives appointed by and act ing as the agent of the t i t le holders bymeans of a power of at torney that is made in accordance with the prevai l ing

laws and regulat ions.

(2) In the event that the del iberat ions and consensus referred to in paragraph (1)

of Art icle 63 are not achieved, the part ies may appoint another party in

accordance with the prevai l ing laws and regulat ions.

Art icle 65

(1) The compensation for the land shall be determined based on the resul ts of del iberat ions by taking into considerat ion the latest Sel l ing Value of the Tax

Object .

(2) The compensations for the bui ldings, plants and other objects exist ing thereonshall be determined based on the related technical standards.

Art icle 66

(1) The provision of a compensation shal l be accompanied by a wri t ten statement

of rel inquishment or assignment of the land t i t le, which is s igned by the

part ies at the presence of a t two (2) witnesses.

(2) At the t ime the wri t ten statement referred to in paragraph (1) is made, the

holder of the land t i t le shal l hand over the cert i f icate and/or the original

documents of the related land to the Contractor.

Art icle 67

(1) The land, the set t lement of which has been made by the Contractor as provided

for in Ar ticle 62, shal l become the property of the State and be managed by theImplementing Body, except leasehold estates.

(2) A request for the cert i f icate of ownership of the land referred to in paragraph

(1) shal l be submit ted in accordance with the provisions o f the prevai l ing laws

and regulat ions.


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Art icle 68

(1) The Operat ional Area of a Contractor that is not yet used for Explorat ion and

Exploi tat ion may be used for activi t ies other Explorat ion and Exploi tat ion by

another party af ter obtaining the recommendation of the Minister and theut i l izat ion l icense from the related Regional Government .

(2) The other party referred to in paragraph (1) may, by the Minister 'srecommendation, submit a request for a land t i t le in accordance with the

prevai l ing laws and regulat ions.

Art icle 69

(1) The Contractor may perform the Explorat ion and Exploi tat ion act ivi t ies other

than the ones def ined in Art icle 44 in the Operat ional Area of the Contractor

concerned in accordance with the Cooperat ion Contract .

(2) The Contractor may bui ld such faci l i t ies as set forth in Art icle 44 on the plot

of land and/or in the outside of the Contractor 's Operat ional Area af ter theprocurement thereof has been undertaken in accordance with th is Chapter.

(3) The provisions of Art icle 68 shal l apply to the ownership, the registrat ion of

the t i t le and the records of the land used by the Contractor provided for inparagraph (2) .

Art icle 70

(1) The Contractor who possesses the Right of Way (ROW) of Oil and Gas

transmission pipel ines shal l give permission to another Contractor to use suchan ROW for the construct ion and ut i l izat ion of Oil and Gas transmission

pipel ines.

(2) The permission given pursuant to paragraph (1) shal l be based on technical

and economic as well as safety and securi ty considerat ions.

(3) The Contractor who intends to use the ROW referred to in paragraph (1) shal l negotiate direct ly with the Contractor/party who owns the ROW.

(4) In the event that no agreement is achieved in the negotiat ion provided for in

paragraph (3), the Contractor shall submit a request to the Minister throughthe Implementing Body to decide a further set t lement .

Art icle 71

The t i t le of the land that is used for the ROW of Oil and Gas transmission pipel ines

referred to in Art icle 69 may be requested in acc ordance with the prevai l ing laws and

regulat ions.


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CHAPTER VIII

INDUSTRIAL SAFETY AND HEALTH

AND

ENVIRONMENTAL MANAGEMENT

AND DEVELOPMENT OF LOCAL COMMUNITY

Art icle 72

The Contractor who carries out Upstream Business Act ivi t ies shal l ensure and

comply with the regulat ions on industrial safety and health as well as environmental

management and local community development .

Art icle 73

The regulat ions on industrial safety and health as well as environmental management and local community development provided for in Art icle 72 shal l be in conformity

with the prevai l ing laws and regulat ions.

Art icle 74

(1) In performing i ts act ivi t ies the Contractor shal l also be responsible for the

development of the local area and community.

(2) The Contractor 's responsibi l i ty for the development of the local area and

community provided for in paragraph (1) shal l be i ts part icipat ion in

developing and ut i l iz ing the potency of the local community, among other

things, by employing personnel in a certain number and quali ty conformed tothe competence required, and improving the dwell ing environment of the

community in order to create harmony between the Contractor and the

surrounding community.

Art icle 75

In the participation for the development of the local area and community as providedfor in paragraph (1) of Article 74, the Contractor shall al locate funds in each of the

work plans and annual budgets made.

Art icle 76

(1) In carrying out the local area and community development the Contractor

shal l coordinate with the Regional Government.

(2) The local area and community development referred to in paragraph (1) shal l

priori tize the community l iving around the area at which the Exploi tat ion is

carried out .

Art icle 77

The Contractor 's part icipat ion in the local area and community development as

provided for in paragraph (1) of Ar ticle 74 shall be given in k ind, in the form ofphysical in frastructure and faci l it ies or the empowerment of the local undertakings

and manpower.


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CHAPTER IX

USE OF DOMESTIC GOODS, SERVICE,

TECHNOLOGY AND ENGINEERING AND DESIGN SKILLS

Art icle 78

(1) Al l materials and equipment which are direct ly used in the Upstream BusinessActivi t ies and were bought by the Contractor shal l be the property of the State

and control led by the Government and managed by the Implementing Body.

(2) In the event that the materials and equipment referred to in paragraph (1) arefrom foreign countr ies, the procedure of import o f such materials and

equipment shal l be establ ished by the Minister, the Minister of Finance and

the ministers whose areas of dut ies and responsibi l i ty include trading af fairs.

(3) The materials and equipment bought by the Contractor as referred to in

paragraph (1) shal l meet the standards prescribed by the applicable laws and

regulat ions.

(4) The Contractor may use the materials and equipment referred to in paragraph(1) during the val idi ty period of the Cooperat ion Contract .

Art icle 79

(1) The Contractor shal l priori t ize the use of domest ic goods, service, technology

as well as engineering and design ski l ls in a transparent and competi t ive

manner.

(2) The priori ty to be given to the use of domest ic goods, service, technology as

well as engineering and design ski l ls as provided for in paragraph (1) shal l beef fected when such goods, service, technology as well as engineering and

design ski l ls have been produced/available in the coun try and meet the quali ty,

del ivery date, and price required in the procurement of goods andserv ices.

Art icle 80

The goods, service, technology as well as engineering and design ski l ls referred to in

Ar tic le 79 may be imported insofar as they are not yet produced/available in thecountry and as long as the goods, service, technology as well as engineering and

design ski l ls to be imported meet the requirement of s tandard/quali ty, operat ing cost

ef f iciency, del ivery date warranty, and the af ter-sale service is guaranteed.

Art icle 81

(1) The management of materials and equipment that are used in Upstream

Business Act ivi t ies shall be performed by the Implementing Body.

(2) Any excess stock of the materials and equipment referred to in paragraph (1)

may be handed over to another Contractor to be used in Indonesian Legal

Mining Terr i tory by the approval of the Implementing Body and shall bereported periodical ly to the Minister and the Minister of Finance.

(3) In the event that the excess stock of materials and equipment referred to in

paragraph (2) is not used by another Contractor, the Implementing Body


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shal l matter to the Minister of Finance through the Minister, so that the pol icy

on i ts ut i l izat ion can be establ ished.

(4) In the event that the materials and equipment referred to in paragraph (3) wil l

be assigned, sold, exchanged, turned into the capital investment of the State,destroyed or used by another party by means of lending, leasing, and joint use

of them, the approval of the Minister of Finance shal l be obtained in advance

based on the recommendations of the Implementing Body given through theMinister

.

(5) When the Cooperat ion Contract expires, the Contractor 's materials andequipment shal l be handed over to the Government , so that the pol icy on their ut i l izat ion can be establ ished in accordance with the prevai l ing laws and

regulat ions.

(6) CHAPTER X

MANPOWER

Article 82

(1) In meet ing i ts manpower requirement , the Contractor shal l priori t ize the use

of Indonesian nat ionali ty personnel by giving considerat ion to the use of local work force in accordance with the required standard of competence.

(2) The Contractor may use expatriate personnel for certain posi t ions and

expert ise, which st i l l cannot be ful f i l led by Indonesian personnel , in

accordance with the required competence of the posi t ions concerned.

(3) The procedure on the use of manpower as set forth in paragraph (2) shal l be in

conformity with the provisions of the prevai l ing laws and regulat ions.

Art icle 83

The provisions on employment relat ion/contract , protect ion and condit ions, and thetransfer of part ial execut ion of the works to another company shall be made in

accordance with manpower laws and regulat ions.

Art icle 84

To develop the ski l ls of Indonesian personnel in order to meet the Contractor 's

s tandards of competence and job quali ficat ions, the Contractor shal l provideguidance and carry out an educational and training program for Indonesian

personnel .

Art icle 85

The guidance and development of Indonesian personnel shal l be carried out inaccordance with the applicable laws and regulat ions.


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CHAPTER XI

DEVELOPMENT AND SUPERVISION OF

UPSTREAM BUSINESS ACTIVITIES

Art icle 86

(1) The development and supervision of Upstream Business Act ivi t ies shal l becarried out by the Government , the implementat ion of which shal l be

conducted by the Minister.

(2) The development referred to in paragraph (1) shal l include:

a. the handling of Government Af fairs deal ing with Upstream Business

Act ivi t ies; and

b. the establ ishment of a pol icy on Upstream Business Act ivi t ies based on

the reserve and potent ials of Oil and Gas resources owned, product ion

capacity, and domest ic demand for Oil and Gas, the possession of technology, environmental aspects and l iving environmental

preservation, and the nat ional capaci ty and development pol icy.

(3) The responsibi l i ty for the supervision of the work and the implementat ion of Upstream Business Act ivi t ies in respect of their compliance with the prevai l ing

laws and regulat ions shal l rest with the Minister.

(4) The Upstream Business Act ivi t ies shal l be carried out and control led through

a Cooperat ion Contract between the Implementing Body and a Business Enti tyor Permanent Establ ishment .

(5) The Implementing Body shall conduct the supervision and control over theimplementat ion of Cooperat ion Contract provided for in paragraph (4) .

(6) In carrying out the supervision and control over the implementat ion of Cooperat ion Contract provided for in paragraph (5) , the Implementing Body

shall be authorized to sign other contracts that are associated with the

Cooperat ion Contract .

(7) The supervision and control referred to in paragraph (5) shal l be carriedout by the Implementing Body through a management control over the

implementat ion of the Cooperat ion Contract .

Art icle 87

(1) The handling of Government af fairs referred to in paragraph (2) i tem a of

Art icle 86 shal l include:

a. planning;

b. l icense, approval and recommendation;

c. Oil and Gas Data management and ut i l izat ion;

d. education and training;

e. technological research and development;


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f . s tandardizat ion;

g. accredi tat ion;

h. cert i f icat ion;

i . development of industries/support ing business ent i t ies;

j . development of small and medium scale enterprises;

k. domest ic goods and service ut i l izat ion;

l . safety and health;

m. l iving environment preservat ion;

n. the creat ion of a conducive investment cl imate;

o. securi ty and order maintenance.

(2) The establ ishment of a pol icy on Upstream Business Act ivi t ies referred to inparagraph (2), i tem b, of Art icle 86 shal l include the regulat ion of:

a. General Survey implementat ion;

b. Oil and Gas Data management and ut i l izat ion;

c. Operat ional Area preparat ion, determination, of fer and turnover;

d. Cooperat ion Contract form and condit ions;

e. Cooperat ion Contract extension;

f . in i t ia l f ield development plan;

g. f ield development and Oil and Gas reserves product ion;

h. Gas ut i l izat ion;

i . sound technical standards applicat ion;

j . obl igat ion to supply the Contractor 's share of Oil and Gas to meet thedomest ic needs (DMO);

k. possession, development , and applicat ion of Oil and Gas technology;

l . obl igat ion to pay state revenue;

m. environmental management;

n. safety and health;

o. use of expatriate personnel;

p. Indonesian manpower development;


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q. local area and community development;

r. s tandardizat ion;

s . use of domest ic goods, service, technology, and engineering and designski lls;

t . Oil and Gas reserves and resources conservat ion;

u. coalbed methane exploi tat ion;

v. other Oil and Gas act ivi t ies that involve public interests .

Art icle 88

The supervision speci f ied in paragraph (3) of Art icle 86 shal l include:

a. Oil and Gas resources and reserves conservat ion;

b. Oil and Gas data processing;

c. sound technical standards;

d. safety and health;

f . environmental management;

g. use of domest ic goods, service, technology, and engineering and design ski l ls;

h. use of expatriate personnel;

i . Indonesian manpower development;

j . local area and community development;

k. possession, development , and applicat ion of Oil and Gas technology;

l . other Oil and Gas act ivi t ies that involve public interests .

Art icle 89

(1) The responsibi l i ty for the development referred to in Art icle 87 shal l rest withthe Department and the related departments in accordance with their

respect ive areas of dut ies and authori ty.

(2) The responsibi l i ty for the supervision referred to in Art icle 88 shal l rest with

the Department and the related departments in accordance with their respect ive areas of dut ies and authori ty.

Art icle 90

As part of the supervision and development provided for in paragraph (5) of Art icle

86 the Implementing Body shall perform the fol lowing dut ies:

a. to give opinions to the Minister on his pol icy with respect to the preparat ion and

of fer of the Operat ional Areas and Cooperat ion Contracts.


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b. to execute/sign the Cooperat ion Contract;

c. to review and submit the ini t ial development plan of f ield to be produced in an

Operational Area to the Minister for approval;

e. to give approval to the f ield development plan other than the one referred to in

i tem c;

f . to give approval to the work plan and budget;

g. to conduct monitoring and submit report to the Minister about the

implementat ion of the Cooperat ion Contract;

h. to appoint the sel ler of the State 's share of Oil and Gas who is able to give the

greates t poss ible prof i ts to the State.

Art icle 91

The Implementing Body shall perform the control and supervision over theimplementat ion of the Cooperat ion Contract 's provisions.

Art icle 92

In performing the supervision for the implementation of the Cooperat ion Contract's

provis ions as provided for in Art icle 91, the Implementing Body shall coordinate with

the Contractor to l iaise with the Department and the related departments.

Art icle 93

(1) The Contractor shal l periodical ly submit wri t ten reports to the Minister

concerning the matters related to the supervision speci f ied in Art icle 88.

(2) The Contractor shal l periodical ly submit wri t ten reports to the Minister

concerning the matters related to the supervision provided for in Art icle 91.

Art icle 94

(1) In the event of the Cooperat ion Contract execut ion referred to in i tem b of

Ar ticle 90, the Implementing Body shall act as the contract ing party in thecontract with a Business Enti ty or a Permanen t Establ ishment .

(2) The execution of the Cooperat ion Contract with a Business Enti ty or aPermanent Establ ishment as referred to in paragraph (1) shal l be in i t ia ted

af ter the approval of the Minister on behalf of the Government has been

obtained.

(3) The Implementing Body shall give a wri t ten not ice on the Cooperat ionContract i t has executed to the House of Peoples Representat ives of the

Republic of Indonesia by accompanying the copy thereof .

Art icle 95

(1) The ini t ial f ield development plan to be produced in an Operat ional Area asprovided for in i tem c of Art icle 90, including any amendment thereof , shal l be

subject to the Minister 's approval g iven based on the considerat ions of the

Implementing Body.


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(2) In giving the approval referred to in paragraph (1) the Minister shal l consul t

with the Governor whose administrat ive terri tory encompasses the f ield to be

developed.

(3) The consul tat ion provided for in paragraph (2) shal l be aimed at givingexplanations and obtaining information, especial ly those which are related to

the spat ial plan and the Regional Government 's project ion of revenues from

Oil and Gas.

Art icle 96

(1) In the event that the Contractor who has obtained the approval provided for in

paragraph 1 of Art icle 95 fai ls to perform any act ivi ty in accordance with thef ield development plan, the Contractor shal l , within f ive (5) years from the

approval of the ini t ial f ield development plan, return the ent ire Operat ional

Area to the Minister.

(2) Excepted from the provisions set out in paragraph (1) , with respect to the

Natural Gas f ield development, shal l be a condit ion where there is no Natural

Gas sale contract has been made unt i l the elapse of the t ime period speci f iedin paragraph (1) , in which case the Minister may establ ish a pol icy on the

extension of the period speci f ied in paragraph (1) for the Contractorconcerned.

Art icle 97

In making the review provided for in i tem c of Art icle 90 and in giving the approval

referred to in i tem d of Art icle 90, the Implementing Body shall consider, among other

things, the fol lowings:

a. est imate of Oil and Gas reserve and product ion;

b. est imate of costs required for the f ield development and Oil and Gas product ion

costs;

c. Oil and Gas ut i l izat ion plan;

d. Oil and Gas exploi tat ion process;

e. est imate of State revenue from Oil and Gas;

f . use of domestic manpower, goods and product ion services;

g. industrial safety and health , environmental management and local area and

community development .

Art icle 98

In giv ing the approval o f the work plan and budget as set forth in item e of Art icle 90,

the Implementing Body shall consider the fol lowings:

a. long-term plan;

b. successful achievement of operat ional targets;

c. ef forts to increase Oil and Gas product ion;


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d. operat ional techniques and the fairness of operat ing cost uni ts of each operat ion

to be carried out;

e. ef f iciency ef forts;

f . approved field development plan;

g. operat ion schedule and expiration of Cooperation Contract;

h. industrial safety and health and environmental management;

i . manpower ut i l izat ion and development as well as industrial relat ionsdevelopment;

j . local area and community development .

Art icle 99

Based on the monitoring provided for in item f o f Art ic le 90, the Implementing Bodyshall submit periodic reports to the Minister covering the fo l lowings:

a. work plan and budget of each Contractor and their real izat ion;

b. est imate of Oil and Gas product ion and i ts real izat ion;

c. est imate of State revenue and i ts real izat ion;

d. est imated cost of investment in Explorat ion and Exploi tat ion and i tsreal izat ion;

e. the real izat ion of operat ing expenses of each Contractor;

f . the Contractors management and use of assets and operat ional materials .

Art icle 100

(1) In appoint ing the sel ler of the State 's share of Oil and/or Gas as provided for in

i tem g of Art icle 90, the Implementing Body may appoint the Business Enti ty or

the Contractor concerned.

(2) The Business Enti ty or the Contractor appointed to be the sel ler of the State 's

share of Oil and/or Gas shal l be authorized to transfer the ownership right ofthe State 's share of Oil and/or Gas to the buyer at the point of del ivery based on

the related Oil and/or Gas sale and purchase agreement .

(3) The Implementing Body may appoint the Contractor to sel l for the Implementing

Body the State 's share of Oil and/or Gas derived from i ts Operational Areabased on the Cooperat ion Contract .

(4) The Implementing Body may appoint the Contractor to sel l for the Implementing

Body the State 's share of Oil and/or Gas derived from i ts Operational Areabased on the Cooperat ion Contract and from another Operat ional Area.

(5) Before appoint ing the sel ler of the State 's share of Oil and/or Gas referred to in

paragraph (1) the Implementing Body shall consult with the Contractor and

consider the fol lowings:


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a. the smoothness, cont inuance and ef f iciency of the Oil and/or Gas sale;

b. the sel l ing abi l i ty;

c. Oil and/or Gas sale price;

d. the sel ler 's r ights and obl igat ions;

e. There is no confl ict of interests between the Business Enti ty appointed as

the sel ler and the Contractor.

(6) The appointment of the Business Enti ty or the Contractor to be the sel ler of theState's share of Oil and/or Gas as provided for in paragraph (1) and the

requirements thereof shal l be material ized in an agreement .

(7) Where the sel ler appointed is the Contractor concerned, the expenses arisingfrom the sale of Oil and/or Gas shal l be treated as operat ing costs as set out in

the Cooperat ion Contract with the Contractor, except to the extent that such

expenses or consequences are caused by the wil l ful faul t of the Contractor.

(8) Where the appointed sel ler is not the Contractor concerned, the fee to beprovided to the sel ler shal l be of fset against the State 's share of the Oil and/or

Gas sale proceeds.

(9) The Implementing Body shall submit a report to the Minister on the

appointment of sel ler of the State 's share of Oil and/or Gas provided for in

paragraph (1), and the agreement referred to in paragraph (2).

Art icle 101

(1) The sel ler referred to in paragraph (1) of Art icle 100 shall be ful ly responsibleto the buyer for the smoothness and continuance of the Oil and/or Gas sale.

(2) The sel ler referred to in paragraph (1) shal l conduct the market ing, negotiat ionwith the prospect ive buyer and sign the sale and purchase agreement as well asother related agreements.

(3) The signing of agreements provided for in paragraph (2) shal l be performed

af ter the approval of the Implementing Body has been obtained.

(4) The signing of agreements provided for in paragraph (2) by the sel ler other than

the Contractor shal l be performed af ter the approval of the Contractorconcerned has been obtained.

(5) The Implementing Body shall supervise the implementat ion of the agreements

referred to in paragraph (3) .

(6) Further provisions on the appointment of sel ler of the State 's share of Oil and/or

Gas shal l be def ined by the Decision of Head of Implementing Body.

Art icle 102

(1) The Minister may st ipulate further the provisions on the scope of UpstreamBusiness Act ivi t ies supervision carried out by the Department as speci f ied in

Art icle 88.


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(2) The Head of Implementing Body may def ine further the provisions on the scope

of Upstream Business Act ivi t ies supervision by the Implementing Body speci f ied

in Art icle 91.

(3) Where necessary, the Minister and the Head of Implementing Body may joint lydef ines the scope of sup ervision of Upstream Business Act ivi t ies.

CHAPTER XII

OTHER PROVISIONS

Art icle 103

The provisions concerning the coalbed methane including the form and condit ions of

the Cooperat ion Contract shal l be st ipulated by the Decree of the Minister.

CHAPTER XIII

TRANSITIONAL PROVISIONS

Art icle 104

As of the ef fect ive date of this Government Regulat ion:

a. The Production Sharing Contract and other contracts related to the Product ion

Sharing Contract between Pertamina and other part ies shal l remain in force

unti l expirat ion thereof .

b. The Product ion Sharing Contract and other contracts related to the Product ion

Sharing Contract referred to in i tem a shal l pass on to the Implementing Body.

c. The Contracts between Pertamina and other part ies in the form of Joint

Operat ing Agreement (JOA)/Joint Operat ing Body (JOB) shall pass on to the

Implementing Body and be effect ive unt il the expirat ion thereof .

d. The rights and obl igat ions ( the part icipat ing interests) in the JOA and JOB

referred to in i tem c shal l pass on from Pertamina to PT. Pertamina (Persero).

e. The Contracts between Pertamina and other part ies in the form of Technical Assistance Contract (TAC), and Enhanced Oil Recovery (EOR) Contract shal l

pass on to PT. Pertamina (Persero) and be ef fect ive unt i l the expirat ion there

of .

f . Upon the expirat ion of the JOA/JOB referred to in item c, the Minis ter shall

establ ish a pol icy on the form and terms of cooperat ion in the former areas of

such contracts.

g. Upon the expirat ion of the Technical Assistance Contract (TAC) and Enhanced

Oil Recovery (EOR) Contract referred to in i tem e that are avai lable at the ex-

Pertamina mining concess ion area, the former areas of such contracts shal l be

part of the Operat ional Area of PT. Pertamina (Persero).

h. In the event that prior to the expirat ion of the Contracts referred to i tem e anagreement is achieved by the part ies, the Minister may establ ish a pol icy on

the other form of the contract concerned.


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i . PT. Pertamina (Persero) shal l enter into a Cooperat ion Contract with the

Implementing Body to continue the Explorat ion and Exploi tat ion at the ex-

Pertamina mining concession area.

j . Within a maximum period of two (2) years, PT. Per tamina (Persero) referred toin i tem i shal l establ ish a subsidiary company and enter into a Cooperat ion

Contract with the Implementing Body for each of Operat ional Area, for the

contract term of thirty (30) years, which is extendable in accordance with theprevai l ing laws and regulat ions.

k. The amount of payment by PT. Pertamina (Persero) and the subsidiary company

as provided for in i tems d, i and j to the State shal l be in conformity with theprovisions applicable at the ex-Pertamina mining concession area.

l . The Minister shal l determine the form and condit ions of the Cooperat ion

Contract for PT. Pertamina (Persero) and the subsidiary company as providedfor in i tems h , i and j .

m. The transference of contracts provided for in i tem b shal l not change theprovisions of such contracts.

n. The Implementing Body and PT. Pertamina (Persero) shal l f inish the amendment

of the contracts referred to in i tem b to be approved by the Minister.

o . The LNG sale and transportat ion contracts between Pertamina and otherpart ies shal l pass on to PT. Pertamina (Persero).

CHAPTER XIV

CONCLUSION

Art icle 105

This Government Regulat ion shal l come into e f fect as of the date of i ts p romulgation.In order that i t my be known to al l, an order is hereby given to promulgate thisGovernment Regulat ion by insert ing i t in the State Gazet te of the Republic of

Indonesia .

Establ ished in Jakarta

on October 14, 2004

PRESIDENT OF THEREPUBLICOF INDONESIA

(signed )

MEGAWATI SOEKARNOPUTRI

Promulgated in Jakartaon October 14, 2004

STATE SECRETARY OF THE REPUBLIC OF INDONESIA

( signed)

BAMBANG KESOWO

THE STATE GAZETTE OF THE REPUBLIC OF INDONESIA

NO. 123 OF 2004.


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PRESIDENT OFTHE REPUBLIC OF INDONESIA

ELUCIDATION

OF

GOVERNMENT REGULATION OF THE REPUBLIC OF INDONESIA

NO. 35 OF 2004

CONCERNING

OIL AND GAS UPSTREAM BUSINESS ACTIVITIES

GENERAL

It has been affirmed since the enactment of Law No. 22 of 2001 on Oil and Gas that the Oil and Gas, as

non-renewable strategic natural resources existing in the Indonesian Legal Mining Territory, constitutethe national assets that are controlled by the State. This State's control is carried out by the Government as

the holder of Mining Concession.

Being strategic natural resources, Oil and Gas are the national assets that play a significant role as

sources of financing, energy and fuel for the development of the state economy.

Considering that Oil and Gas are non-renewable natural resources, the Oil and Gas Upstream Business

Activities must be carried out in the optimum possible manner and the policy on their organization must bemade based on the spirit of Article 33, paragraphs (2) and (3), of the 1945 Constitution.

The purpose of carrying out the Oil and Gas Upstream Business Activities is, among other things, to ensure

the effective performance and control of Oil and Gas Exploration and Exploitation business activities in an

efficient and effective and highly competitive and sustainable manner by means of an open and transparent

mechanism.

Embarking from the underlying necessity for a legal basis in the execution of Upstream Business Activities,

it is necessary to regulate these Business Activities in a Government Regulation.

This Government Regulation regulates Oil and Gas Upstream Business Activities and covers, among other

things, the regulation of their execution including the development and supervision, and the mechanism of

Operational Area allocation, General Survey, Data supply, and Cooperation Contract conclusion, the use

of Oil and Gas to meet the domestic requirement, the state revenues, the allocation and use of land, thedevelopment of local areas and community, the utilization of domestic goods, service, engineering and

design skills and the use of manpower in Oil and Gas Upstream Business Activities.

ARTICLE BY ARTICLE

Article 1

Self-explanatory

Art icle 2

Self-explanatory


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Article 3

Self-explanatory

Article 4

Paragraph (1)

Self-explanatory

Paragraph (2)

The direct offer of an Operational Area could be the offer of an Operational Area that is

made directly by the Minister to Permanent Establishments, or the submission or request

for an Operational Area that is made directly by a Business Entity or Permanent

Establishment to the Minister. The direct offer of an Operational Area is announcedpublicly in a mass media. The Business Entity and PermanentEstablishment authorized

to conduct the Exploration and Exploitation at such an Operational Area are determined

based on the results of technical and economic evaluations that are directly conducted bythe Operational Area Offering Team.

Article 5

Self-explanatory

Article 6

Paragraph (1)

The Minister's decisions on the offer of an Operational Area through a tender shall be

based on the results of evaluation by the Operational Area Tender Team, and on thedirect offer to Business Entities or Permanent Establishments shall be based on the

results of the evaluation by the team established by the Minister.

Paragraph (2)

The Implementing Body may give inputs to the Minister as to the performance of the

related Business Entity or Permanent Establishment based on the records of operations

it has maintained.

Paragraph (3)

Self-explanatory

Article 7

Paragraph (1)

Self-explanatory

Paragraph (2)

These provisions are intended to enable the Minister to appoint another Business Entity

or Permanent Establishment to operate an Operational Area that has been turned over

by the Contractor, so that the Oil and Gas resources can be utilized optimally.


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Paragraph (3)

Self-explanatory

Article 8

Self-explanatory

Article 9

Self-explanatory

Article 10

These provisions are intended to optimize the utilization of Oil and/or Gas, which are considered

unprofitable to the Contractor.

Article 11

Self-explanatory

Article 12

The purpose of conducting the General Survey across the Operational Area is to map the overall

condition of surface geology in a sedimentary basin, to meet the technical processing

requirements of certain types of survey and for other purposes in terms of efficient operations on

the field.

Article 13

Paragraph (1)

The Business Entity mentioned in these provisions is the one that has expertise,

experience and financial capacity to carry out the General Survey. The issuance of a

General Survey License to a Business Entity for a certain location does not preclude the

issuance of a license to another Business Entity to carry out a General Survey at thesame location.

Paragraph (2)

Self-explanatory

Paragraph (3)

Self-explanatory

Article 14

Self-explanatory

Article 15

Paragraph (1)

Self-explanatory


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Paragraph (2)

The management and utilization of Data is intended to facilitate the determination of

Operational Areas, the formulation of technical policies, the handling of Government

affairs as well as the supervision and implementation of Exploration and Exploitation,the socialization of Data for the users and for Data exchange.

Article 16

Self-explanatory

Article 17

Self-explanatory

Article 18

Self-explanatory

Article 19

Self-explanatory

Article 20

Self-explanatory

Article 21

Self-explanatory

Article 22

Self-explanatory

Article 23

Paragraph (1)

Self-explanatory

Paragraph (2)

The Data confidentiality period is commenced from the dates on which the statuses of

Base Data, Processed Data and Interpretation Data are defined by the Government.

Paragraph (3)

In these provisions, the expression "no longer classified as confidential Data" means that

the Data is accessible to all parties interested in the Exploration and Exploitation.

Article 24

Paragraph (1)

Self-explanatory


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Paragraph (2)

Item a

In these provisions, the term "point of delivery" means the point (location) at

which the Contractor shall deliver the State's share to the Government and beentitled to earn its share of production. This point of delivery is agreed by the

Implementing Body and the Contractor and defined in the Cooperation

Contract, and could be the point similar to the point of delivery to thepurchaser of such a share of production.

Item b

In these provisions, "operation management control" means either the issuanceof approvals for the work plan, budget, field development plan or the

supervision of the plans realization.

Item c

Self-explanatory

Article 25

The form of Cooperation Contract is Production Sharing Contract, or such another form of

cooperation contract as Service Contract. The risk levels are based on the phases of activities, thelocation and availability of data and infrastructure.

Article 26

Self-explanatory

Article 27

Paragraph (1)

Self-explanatory

Paragraph (2)

Self-explanatory

Paragraph (3)

Self-explanatory

Paragraph (4)

The term "commercial production" in these provisions means the production that is

commercially profitable to either the State or the Contractor. The obligation to return theOperational Area in these provisions must be performed when the field development

plan of the related reserve (the initial field development) has been disapproved by the

Minister.

Article 28

Paragraph (1)

In the event that the extension of the Gas sale and purchase agreement exceeds twenty

(20) years, the Contractor appointed to continue the Exploration and Exploitation at that


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Operational Area shall ensure the continuation of the sale until the Sale and Purchase

Agreement expires.

Paragraph (2)

Self-explanatory

Paragraph (3)

Self-explanatory

Paragraph (4)

Self-explanatory

Paragraph (5)

Self-explanatory

Paragraph (6)

The "agreements" in these provisions means a Letter of Intent, Memorandum ofUnderstanding (MoU) or Head of Agreement (HoA) or sale and purchase contracts.

Paragraph (7)

The technical acceptability in these provisions is based among others on production

deliverability, reservoir pressure and Gas specifications, and the economic acceptability

is based among others on investment value, cost recovery, Oil and Gas price, and theState revenue.

Paragraph (8)

Self-explanatory

Paragraph (9)

Self-explanatory

Paragraph (10)

Self-explanatory

Article 29

Self-explanatory

Article 30

Self-explanatory

Article 31

Self-explanatory


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Article 32

In these provisions, the expression "the Contractor fails to perform its obligation" means the

Contractor does not fulfill its obligations under the Cooperation Contract and the prevailing laws

and regulations due to a willful act or negligence or the omission of good faith in performing itsobligations, or due to the events other than farce majeure that make the Contractor failed to

perform its obligations.

Article 33

Paragraph (1)

Self-explanatory

Paragraph (2)

The term "national companies" in these provisions means the state-owned enterprises

(BUMN), Regional Government's enterprises (BUMD), cooperatives, small businesses

and national private companies which shares are entirely owned by Indonesian citizens.The offer is made by the Contractor to the national companies according to normal

business practices. In these provisions, if the offer has been made by the Contractor butnone of the national companies is interested in it, then the Contractor may make an offer

to another party.

Paragraph (3)

Self-explanatory

Paragraph (4)

In these provisions, the term "affiliate" means a company or another body that controlsor is controlled by either of the parties, or a company or another body that controls or is

controlled by a company or another body in which it controls either of the parties, and it

is understood that, where the other body is not a company, 'controlling' signifies theholding by a company or another body of at least 50% of the voting shares or the shareswith controlling rights or profits entitlement.

Article 34

The Regional Government's Enterprises (BUMD) in these provisions are the enterprises

established by the Regional Government, which administrative area encompasses the field

concerned. Such enterprises must have financial capacity that is adequate for participation.This participation is performed (the participating interest is held) by the Contractor and the

BUMD according to normal business practices.

If there are more than one BUMD in that area, the proportion of the participating interest will be

determined by the Governor at his discretion

Article 35

Paragraph (1)

Self-explanatory


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Paragraph (2)

The national companies in these provisions are the state-owned enterprises (BUMN),

cooperatives, small business and national private companies which shares are entirely

owned by Indonesian citizens.

Paragraph (3)

Self-explanatory

Article 36

Self-explanatory

Article 37

Self-explanatory

Article 38

Self-explanatory

Article 39

Paragraph (1)

Self-explanatory

Paragraph (2)

Self-explanatory

Paragraph (3)

The expressions "optimization of exploitation" in these provisions means producing the

Oil and Gas for the longest possible period of time, and "efficient use" means reducing to

the greatest possible extent any losses on the use of Oil and Gas and the gas flare on thefield.

Paragraph (4)

Self-explanatory

Article 40

Self-explanatory

Article 41

Paragraph (1)

Self-explanatory


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Paragraph (2)

Self-explanatory

Paragraph (3)

The maximum period of five (5) years is specified, so that any required field development,

which should be carried out by means of unitization, will not be hindered, especially thedevelopment of natural gas to supply the market demands.

Paragraph (4)

Self-explanatory

Article 42

Self-explanatory

Article 43

Self-explanatory

Article 44

Paragraph (1)

Self-explanatory

Paragraph (2)

In this paragraph, the provision of facilities to another party is part of the UpstreamBusiness Activities and do not require any license from the government.

The charges to be imposed will be determined by calculating the costs of investment,

operation and maintenance.

Article 45

Self-explanatory

Article 46

Paragraph (1)

The domestic needs in these provisions are the total amount of the national requirement

for Oil and/or Gas. The obligation to supply the gas in these provisions shall apply to the

Cooperation Contracts which effective dates are after the date on which Law No. 22 of

2001 took effect.

Paragraph (2)

The prorate system referred to in these provisions is the percentage of oil to be deliveredby the Contractor, up to a maximum amount of 25% of its share, to meet the domestic

demands that are calculated based on the national requirement.


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Paragraph (3)

Self-explanatory

Paragraph (4)

Self-

Documents

Government Regulation of the Republic of Indonesia Number 35 of 2004