Upstream Oil and Gas Business Activities

Upstream oil and gas business activities are business activities that are based on Exploration and Exploitation business activities (Article 1 number 7 of Law 22/2001). Exploration is an activity that aims to obtain information about geological conditions to find and obtain estimates of Oil and Gas reserves and Exploitation is an activity that aims to produce Oil and Gas (Article 1 points 8 and 9 of Law 22/2001).

The upstream business implementation can be carried out by State-Owned Enterprises (BUMN), Regional-Owned Enterprises (BUMD), Cooperatives, Small Businesses, Private Enterprises, or Permanent Establishments (Article 9 of Law 22/2001).

For business entities or permanent establishments that carry out upstream business activities, they are prohibited from carrying out downstream business activities, and vice versa business entities that carry out downstream business activities cannot carry out upstream business activities (Article 10 of Law 22/2001).

Upstream business activities are carried out and controlled through a Cooperation Contract in the form of a production sharing contract or other form of cooperation contract that benefits the State more and the results are used as much as possible for the people’s prosperity (Article 1 number 19 of Law 22/2001).

A cooperation contract between a business entity or a permanent establishment with an executing body that has been signed must be notified in writing to the People’s Legislative Assembly of the Republic of Indonesia (DPR RI) (Article 11 of Law 22/2001).

The cooperation contract must contain the main provisions, namely (Article 11 of Law 22/2001):

  1. State revenue
  2. Work Area and return
  3. Obligation to disburse funds
  4. Transfer of ownership of production of Oil and Gas
  5. Duration and condition of contract extension
  6. Settlement of disputes
  7. Obligation to supply petroleum and / or natural gas for domestic needs
  8. End of contract
  9. Obligations of mining operations
  10. Occupational safety and health
  11. Environmental management
  12. Transfer of rights and obligations
  13. Reporting required
  14. Plan for field development
  15. Prioritizing the use of domestic goods and services
  16. Development of the surrounding community
  17. Guarantee the rights of indigenous peoples
  18. Prioritizing the use of Indonesian labor.

Business entities or permanent establishments that carry out upstream business activities must pay state revenues in the form of taxes (taxes, import duties and other levies on imports and excise, regional taxes and regional levies) and non-tax state revenues (parts of the state, state levies in the form of fixed contributions and exploration and exploitation contributions, and bonuses) (Article 31 of Law 22/2001).

how can we help you?

Contact us or submit a business inquiry online.